AC/113 AC113 AC 113 UNIT 8 DISCUSSION

AC 113 UNIT 8 DISCUSSION

Unit 8: Unit 8: Fixed Assets and Intangible Assets - Discussion

Unit 8 Discussion:

Fixed assets are a major classification on the balance sheet of most businesses. Understanding the computation of depreciation and the accounting for fixed assets is important. In this Discussion, you will look at the accounting for fixed assets and intangible assets.

This week’s Discussion focuses on Activity 7-6 located on page 282 of your textbook, which reads as follows:

The following is an excerpt from a conversation between the chief executive officer, Kim Jenkins, and the chief financial officer, Steve Mueller, of BKX Group Inc.:

Kim: Steve, as you know, the auditors are coming in to audit our year-end financial statements pretty soon. Do you see any problems on the horizon?

Steve: Well, you know about our “famous” Scher Company acquisition a couple of years ago. We booked $9,000,000 of goodwill from that acquisition, and the accounting rules require us to recognize any impairment of goodwill.

Kim: Uh-oh.

Steve: Yeah right. We had to shut the old Scher Company operations down this year because those products were no longer selling. Thus, our auditor is going to insist that we write off the $9,000,000 of goodwill to reflect the impaired value.

Kim: We can’t have that – at least not this year! Do everything you can to push back on this one. We just can’t take that kind of a hit this year. The most we could stand is $5,000,000. Steve, keep the write-off to $5,000,000 and promise anything in the future. Then we’ll deal with that when we get there.

Address the following question:

How should Steve respond to Kim? Support your analysis.