On November 13, Underhill Inc., a calendar year taxpayer, purchased a business for a $750,000 lump-sum price.

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On November 13, Underhill Inc., a calendar year taxpayer, purchased a business for a $750,000 lump-sum price. The business’s balance sheet assets had the following appraised FMV.

Accounts receivable ............... $ 38,000
Inventory .................................    77,000
Tangible personalty ...............  400,000
                                                   $615,000

a. What is the cost basis of the goodwill acquired by Underhill on the purchase of this business?

b. Compute Underhill’s goodwill amortization deduction for the year of purchase.

c. Assuming a 21 percent tax rate, compute the deferred tax asset or deferred tax liability (identify which) resulting from Underhill’s amortization deduction.

Goodwill
Goodwill is an important concept and terminology in accounting which means good reputation. The word goodwill is used at various places in accounting but it is recognized only at the time of a business combination. There are generally two types of...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
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Principles Of Taxation For Business And Investment Planning 2019 Edition

ISBN: 9781260161472

22nd Edition

Authors: Sally Jones, Shelley C. Rhoades Catanach, Sandra R Callaghan

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