Question

On July of year 1, Riverside Corp. (RC), a calendar-year taxpayer, acquired the assets of another business in a taxable acquisition. When the purchase price was allocated to the assets purchased, RC determined it had purchased $2,040,000 of goodwill for both book and tax purposes. At the end of year 1, RC determined that the goodwill had not been impaired during the year. In year 2, however, RC concluded that $405,000 of the goodwill had been impaired wrote down the goodwill by $405,000 for book purposes. (Do not round intermediate computations.)

Required:

What book-tax difference associated with its goodwill should RC report in year 1? Is it favorable or unfavorable? Is it permanent or temporary?

What book-tax difference associated with its goodwill should RC report in year 2? Is it favorable or unfavorable? Is it permanent or temporary?

Answer 1

ans

For tax purposes RC amortizes the $20,40,000 on using the straight line method over15 years (180 months).

in year 1, it will amortize and expense $68000of the goodwill ($20,40,000/180 months x 6 months = $68,000) for tax purposes

.However, for book purposes, it does not deduct any of the goodwill.

it should report favourable temporary difference of $ 68000

n year 2, RC amortizes of the goodwill for tax purposes ($20,40,000/180 x12 = $1,36,000)

For book purposes it writes off $405000 in goodwill.

it should reports a $269000 as unfavorable temporary book-tax difference inyear 2.