On June 1 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 $1,557,000 of goodwill for both book and tax purposes. At the end of year 1, the auditors for RC determined that the goodwill had not been impaired during the year. In year 2, however, the auditors concluded that $505,000 of the goodwill had been impaired, and they required RC to write down the goodwill by $505,000 for book purposes. (Do not round intermediate calculations.)a-1. What book-tax difference associated with its goodwill should RC report in year 1?b-1.
What book-tax difference associated with its goodwill should RC report in year 2?

Explanation:

a-1. What book-tax difference associated with its goodwill should RC report in year 1?

RC will amortize $1,557,000 by using straight line method over the 15 years (180 months).

Amortization cost=Purchase price/Period of amortization*Months left(in year 1) = 1,557,000/180 * 7 = $60,550

For book purposes, RC does not deduct any goodwill because there was no impairement. Therefore, as of year 1 book-tax difference will be $60,550

b-1.  What book-tax difference associated with its goodwill should RC report in year 2?

Amortization cost=Purchase price/Period of amortization*Months left(in year 1) Amortization cost

=Purchase price/Period of amortization  *Months left(in year 2)

=1,557,000/180 * 12 = $103,800

Book tax difference = Book tax reported - Expense reported for tax purpose = 505,000 - 103,800 = $401,200

answer/// real gdp decreases to y3 and the price level falls to p3;