Page 482 - Accounting Principles (A Business Perspective)

11. Plant asset disposals, natural resources, and intangible assets

Fair Market
Book Value Value
Accounts receivable $150,000 $ 150,000
Inventories 450,000 750,000
Land 375,000 675,000
Buildings 450,000 1,050,000
Equipment 180,000 300,000
Patents 120,000 150,000
Liabilities assumed on the purchase of either company include accounts payable, USD 300,000, and notes
payable, USD 75,000.
The only difference between the companies is that Amite has net income that is about average for the industry,

while Beauman's net income is greatly above average for the industry.
Top-level management at Tyre, Inc., has asked you to respond in writing to the following possible situations:
a. Assume Tyre, Inc., can buy Amite Company for USD 2,700,000 or Beauman Company for USD 3,450,000.
Prepare the journal entries to record the acquisition of Amite Company and Beauman Company. What accounts for
the difference between the purchase price of the two companies?
b. Assume Tyre, Inc, can buy either company for USD 2,700,000. Write a report for Tyre, Inc., advising which
company to buy.
Annual report analysis C The mission of Rational Software Corporation is to ensure the success of customers
constructing the software systems that they depend on.

Using the following excerpts from Rational Software's annual reports, calculate the firm's total assets turnover
for 2004 and 2003. (Amounts are in USD thousands.)
2004 2003 2002
Net sales $ 814,935 $ 572,190 $ 411,816
Total assets 1,709,323 1,225,776 453,956
In a written report, discuss the meaning of the total assets turnover ratio and what the ratio means to
management and investors. Use the total assets turnover ratios you computed for Rational Software as an example
in your report.
Ethics case D Based on the situation described in the ethics case regarding ABC Corporation, respond in

writing to the following questions.
a. Depending on his actions, what are the possible consequences for John Gilbert in this situation?
b. Assuming that the president cannot find another appraiser to support the new allocations, what would you do
if you were Gilbert?
c. If the president can find a reputable appraiser to support these new allocations, what would you do if you were
Gilbert?
Group project E In teams of two or three students, find a recent annual report that includes intangible assets

on the balance sheet. Select one member of each team to give an informal presentation discussing intangible asset
disclosures on the face of the statements and in the notes to the financial statements. All members should be
prepared to discuss intangible asset disclosures from their annual report in detail.
Group project F In a group of one or two other students, go to the library and locate Statement of Financial
Accounting Standards No. 2, "Accounting for Research and Development Costs", published by the Financial
Accounting Standards Board. Write a report to your instructor giving the highlights of the standard. For instance,

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