Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 9 Fixed Assets and Intangible Assets 437

Jody:Do you know Margaret, the fixed assets clerk?

Hal:I know who she is, but I don’t know her real well. Why?

Jody:Well, I was talking to her at lunch last Monday about how she liked her job, etc. You

know, the usual...and she mentioned something about having to keep two sets of

books...one for taxes and one for the financial statements. That can’t be good account-

ing, can it? What do you think?

Hal:Two sets of books? It doesn’t sound right.

Jody:It doesn’t seem right to me either. I was always taught that you had to use generally

accepted accounting principles. How can there be two sets of books? What can be the

difference between the two?

How would you respond to Hal and Jody if you were Margaret?

The following is an excerpt from a conversation between the chief executive officer, Rob Rameriz,

and the chief financial officer, Maurice Chandler, of Nile Group, Inc.:

Rameriz (CEO):Maurice, as you know, the auditors are coming in to audit our year-end finan-

cial statements pretty soon. Do you see any problems on the horizon?

Chandler (CFO): Well, you know about our “famous” Hill Companies acquisition a couple of

years ago. We booked $1,000,000 of goodwill from that acquisition, and the accounting

rules require us to recognize any impairment of goodwill.

Rameriz (CEO): Uh oh.

Chandler (CFO): Yeah, right. We had to shut the old Hill Company operations down this year

because those products were no longer selling. Thus, our auditor is going to insist that we

write off the $1,000,000 of goodwill to reflect the impaired value.

Rameriz (CEO): 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

$200,000. Maurice, keep the write-off to $200,000 and promise anything in the future.

Then we’ll deal with that when we get there.

How should Chandler respond to the CEO?

You are planning to acquire a delivery truck for use in your business for three years. In groups

of three or four, explore a local dealer’s purchase and leasing options for the truck. Summarize

the costs of purchasing versus leasing, and list other factors that might help you decide whether

to buy or lease the truck.

Go to the Internet and review the procedures for applying for a patent, a copyright, or a trade-

mark. One Internet site that is useful for this purpose is http://www.uspto.gov, which is linked

to the text’s Web site at http://warren.swlearning.com.Prepare a written summary of these

procedures.

Activity 9-3

Integrity, Objectivity, and
Ethics in Business

Activity 9-4

Shopping for a delivery truck

Activity 9-5

Applying for patents, copy-
rights, and trademarks

ANSWERS TO SELF-STUDY QUESTIONS

2. C The periodic charge for depreciation under the
   declining-balance method (twice the straight-line rate) for the
   second year is determined by first computing the depreciation
   charge for the first year. The depreciation for the first year of
   $6,000 (answer A) is computed by multiplying the cost of the


3. C All amounts spent to get a fixed asset (such as ma-
   chinery) in place and ready for use are proper charges to
   the asset account. In the case of machinery acquired, the
   freight (answer A) and the installation costs (answer B)
   are both (answer C) proper charges to the machinery account.