Question

Assume that Bethany acquires a competitor's assets on March 31st. The purchase price was $150,000. Of that amount, $125,000 is allocated to tangible assets and $25,000 is allocated to goodwill (a §197 intangible asset). What is Bethany's amortization expense for the current year, rounded to the nearest whole number?

A. $0
B. $1,250
C. $1,319
D. $1,389
E. None of these

Answer 1

Bethany's amortization expense for the current year is $1,667.

Step-by-step explanation:

The amortization expense for Bethany for the current year can be calculated by dividing the amount allocated to goodwill ($25,000) by the useful life of goodwill.

In this case, the useful life of goodwill is determined by the tax regulations under section 197. The IRS assigns a useful life of 15 years for goodwill. Therefore, Bethany's amortization expense for the current year would be:

Amortization Expense = Goodwill / Useful Life

Amortization Expense = $25,000 / 15 = $1,666.67

Rounding to the nearest whole number, the amortization expense for the current year is $1,667.