After several profitable years running her business, Ingrid decided to acquire t

Question

After several profitable years running her business, Ingrid decided to acquire the assets of a small competing business. On May 1 of year 1, Ingrid acquired the competing business for $438,000. Ingrid allocated $73,000 of the purchase price to goodwill. Ingrid’s business reports its taxable income on a calendar-year basis.

In lieu of the original facts, assume that Ingrid purchased only a phone list with a useful life of 5 years for $21,500. How much amortization expense on the phone list can Ingrid deduct in year 1, year 2, and year 3?

Phone List

Year 1 Amoritization expense =/= 2867 (this was the answer I got and was marked incorrect)

Year 2 Amoritization expense =/= 4300 (this was the answer I got and was marked incorrect)

Year 3 Amoritization expense =/= 4300 (this was the answer I got and was marked incorrect)

Explanation / Answer

Amortisation for Full Year

7167

(21500*5/15)

First Year

4778

(7167/12*8) for 8 month

Remaining Basis

16722

(21500-4778)

Second Year

5574

(16722*5/15)

Remaining Basis

11148

(16722-5574)

Third Year

3716

Since Section 197 of Internal Revenue Code provides amortisation period of 180 month or 15 months irrespective of life.

Thanks...

Amortisation for Full Year

7167

(21500*5/15)

First Year

4778

(7167/12*8) for 8 month

Remaining Basis

16722

(21500-4778)

Second Year

5574

(16722*5/15)

Remaining Basis

11148

(16722-5574)

Third Year

3716

Since Section 197 of Internal Revenue Code provides amortisation period of 180 month or 15 months irrespective of life.

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