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 on October 1st for $36,000, Lee Corporation may deductin the current year as amortization expense.
b. Assume that on October 1st 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. Lee Corporation may deductin the current year as amortization expense.