Answer:
a. $63,350 temporary and favorable difference.
b. $376,400 temporary and unfavorable difference.
Explanation:
According to Federal tax codes, Goodwill is amortized for 180 months (15 years) on a straight line basis.
a. Company was purchased on June 1 which means that for year 1, 7 months would have gone by at year end.
Amortization = 1,629,000 * 7/180
= $63,350
Riverside will not deduct this from Goodwill in the books however.
<em>In Year 1 therefore, the book-tax difference will be </em><em>a favorable and temporary difference of $63,350</em>
b. Amortization = 1,629,000 * 12/180
= $108,600
Riverside wrote down Goodwill by $485,000 for book purposes.
Temporary tax difference = 485,000 - 108,600
= $376,400
This is unfavorable.
