Able Corporation is a manufacturer of electrical lighting fixtures. Able is currently negotiating with Ralph Johnson, the owner of an unincorporated business, to acquire his retail electrical lighting sales business. Johnson€™s assets that are to be acquired include the following:

Mr. Johnson indicates that a total purchase price of $1,000,000 in cash is warranted for the business because of its high profitability and strategic locations and Able has agreed that the business is worth $1,000,000. Despite the fact that both parties attribute the excess payment to be for goodwill, Able would prefer that the $600,000 excess amount be designated as a 5-year covenant not to compete so that he can amortize the excess over a 5-year period. You are a tax consultant for Able who has been asked to make recommendations as to the structuring of the purchase agreement and the amounts to be assigned to individual assets. Prepare a client memo to reflect yourrecommendations.

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Assets Inventory of electrical fixtures Store Building Adjusted Basis S30,000 80.000 40.000 30,000 60,000 240.000 FM S50,000 00.000 100,000 50,000 100,000 400,000 an Equip 7yr Recovery Period Equip 5 yr Recovery Period Total