On July 1 of year 1, Riverside Corporation (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 $1,710,000 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 $670,000 of the goodwill had been impaired and wrote down the goodwill by $670,000 for book purposes. 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?

SWFT Essntl Tax Individ/Bus Entities 2020
23rd Edition
ISBN:9780357391266
Author:Nellen
Publisher:Nellen
Chapter13: Corporations: Earning & Profits And Distributions
Section: Chapter Questions
Problem 12P
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On July 1 of year 1, Riverside Corporation (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 $1,710,000 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 $670,000 of the goodwill had been impaired and wrote down the goodwill by $670,000 for book purposes. 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?
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