On February 1, Mr. Barnes purchased a business from Mr. and Mrs. Sanchez for a lump-sum price of $750,000. The business included the following balance sheet assets:

By buying the business, Mr. Barnes acquired a favorable lease on office space with a remaining term of 31 months; he estimates that the value of this lease is $20,000. The purchase contract stipulates that Mr. and Mrs. Sanchez will not engage in a competitive business for the next 36 months. Discuss how Mr. Barnes can recover the cost of each of the business assets acquired in this purchase.

Transcribed Image Text:

Accounts receivable Inventory Office supplies (4 months' worth) Furniture and fixtures Appraised FMV $ 27,600 195,000 8,500 395,000