On May 1, Sessi Inc., a calendar year corporation, purchased a business for a $2 million lump-sum price. The business' balance sheet assets had the following appraised FMV.Accounts receivable $ 38,900??Inventory450,000??Tangible personality225,000??Realty:??? Building500,000?? Land 50,000??? $ 1,263,900??a. Compute the cost basis of the goodwill acquired by Sessi Inc. on the purchase of this business. b. Compute Sessi's goodwill amortization deduction for the year of purchase. c. Use a 21 percent tax rate to compute Sessi's deferred tax liability resulting from the amortization deduction.
What will be an ideal response?
Sessi's cost basis in purchased goodwill is $736,100 ($2 million purchase price ? $1,263,900 cost basis of balance sheet assets.)
Goodwill amortization is $32,716 ($736,100/180 months × 8 months).
The amortization deduction is a favorable temporary book/tax difference resulting in an $6,870 deferred tax liability.
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