Ch12 Notes

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University of Toronto Scarborough
Management (MGS)
Professor Rybak

Chapter 12 Accounting in Action: CM 2 With its continuing interest in going public, CM 2 is concerned about its level of reported earnings. In particular, Conner and Martin have expressed concern about the amount of research and development (R&D) expense they see on the forecasted financial statements. They are arguing that this is all asset development and should be capitalizedputting this significant expense on the income statement is hurting the bottom line! In addition, Conner and Martin are also puzzled by the accounting for goodwill and other intangibles. As Conner noted, Intangibles dont have any physical presence, so why should they be part of the asset base? Part I: Goodwill CM 2 reports goodwill on its balance sheet. Knepp and Lopez indicate that the goodwill was from the acquisition of small garage-type software development companies purchased a few years ago. CM 2 purchased the software companies so that it could incorporate their software into the CM 2 product line as well as to gain the expertise of their employees. Conner and Martin argue that no amortization should be recorded for goodwill because they have heard there is no reliable way to establish a useful life for the goodwill. However, they also k
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