On October 1 of the current year, Lee Corporation enters negotiations with Kay Corporation to acquire a

Question:

On October 1 of the current year, Lee Corporation enters negotiations with Kay Corporation to acquire a patent. The patent has 10 years remaining on its legal life.

a. If Lee Corporation purchases the patent for $36,000, how much amortization expense may Lee Corporation deduct in the current year?

b. Assume that Lee Corporation purchases all of the assets of Kay Corporation for $510,000. All of the identifiable assets of Kay Corporation have a fair market value of $420,000, including the patent, which has a fair market value of $36,000. Also, a covenant not to compete for 3 years costing $72,000 is included in the purchase agreement. How much amortization expense may Lee Corporation deduct in the current year?

Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...