[shinallsm]

Becker Question –

On January 2 of the current year, Shaw Corp., and accrual-basis, calendar year c Corporation, purchased all the assets of a sole proprietorship, including 300,000 in goodwill. current year federal income tax expense of 110,100 and 7500 for goodwill impairment were deducted to arrive at Shaw’s reported book income of 239,200. What should be the amount of Shaw’s current-year taxable income, as reconciled on shaw’s schedule m-1 of form 1120, us corporation income tax return?

Choice “c” is correct. 336,800 should be reported as shaw’s current year taxable income, reconciled as follows on shaw’s schedule m-1 on the form 1120

Book income – 239,200
add – federal income tax expense 110,100
less:excess of tax amortization over book impairement of goodwill -12500
Taxable income 336,800

1- Federal income taxes paid are not deductible for tax purposes
2 – the excess amortization is determined as follows:
total purchased goodwill 300,000
divide by 15 years 15
tax amortization 20k
less book impairement -7500
excess tax amortization for the current year 12,500

Can someone please explain the tax amortization amount to me? I thought you didn’t amortize goodwill anymore ? I’m completely confused

 

 

REG - 90 - 10/31/14
FAR - 77 - 1/3/15
AUD - 89 - 4/1/15
BEC - ?? - 5/27/15

[leglock]

For tax you do amortize goodwill and u amortize it ovr 15 yrs by rule. For your books, you use gaap which does not allow you to amortize goodwill. In this problem u r doing an m1 which is reconciling book income to taxable income. So in tthis problem you took an impairment of 7500 on your books. For tax you amortize goodwill over 15 yrs, so that is 20000 per year u r allowed. So u r allowed 20 and already took 7500 on ur books so u can take an additional 12500 to get to taxable income

[ShayneK]

I messed this one up – I get how the answer was calculated, just not sure I get the logic. Goodwill is depreciated over 15 years for tax purposes, fine. The Goodwill was $300K but then it was impaired for $7,500. Why isn't the impaired amount $292.5K the basis and the amortization amount for 15 years based on that number instead of $300K?

Thanks

[Gabe]

You're taking the difference between book and tax- so 20k-7500= 12.5

Try thinking of the $7500 separate from the $300k. they're giving you the $300k, so you can calculate the tax amortization, the book impairment is already calculated.

CPA, CFE
CISA- Experience will be completed by August 2016

[ShayneK]

I get how they derived the amortization amount and the difference between amortization in the “tax books” and the financial books staying as is. What I'm just not getting is the new book value of the GW is now $292.5 (it's been impaired) and the amortization for tax purposes. If we jump ahead to year 2, now on our financial books the GW is going to say $292.5 – it's been impaired, for tax purposes I still have 14 years to amortize it. What is basis? Is it still $300K – the original value of the GW or will it be the $292.5. I would assume it will be the $300 ($20 per year) or we will get “cheated” out of some amortization – if not I have more questions I guess – it just seems like a bit of a book keeping nightmare that I have to “remember” my amortization is based off something other than what is being reported in the FS. What it in year 10 it is impaired again, this time by 50%? In year 11 is my amortization for the year still $20K based off of $300K? (I would assume so – just seems disconnected.)

[Author]

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