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CHE-WARREN_SURVE-11-0704-COMPANY-INDEX.indd 716 Survey of A c c o u n t i n g S i x t h e d i t i o n Carl S. warren Professor Emeritus of Accounting University of Georgia, Athens Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States CHE-WARREN_SURVE-11-0704-SE-FM.indd 1 Survey of Accounting, Sixth Edition © 2013, 2011 South-Western, Cengage Learning Carl S. Warren ALL RIGHTS RESERVED. No part of this work covered by the copyright herein may Vice President of Editorial, Business: be reproduced, transmitted, stored, or used in any form or by any means graphic, Jack W. 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Library of Congress Control Number: 2011944773 ISBN-13: 978-1-133-18912-1 ISBN-10: 1-133-18912-1 South-Western 5191 Natorp Boulevard Mason, OH 45040 USA Cengage Learning products are represented in Canada by Nelson Education, Ltd. For your course and learning solutions, visit www.cengage.com Purchase any of our products at your local college store or at our preferred online store www.cengagebrain.com Printed in the United States of America 1 2 3 4 5 6 7 16 15 14 13 12 CHE-WARREN_SURVE-11-0704-SE-FM.indd 2 Preface 132 Chapter 4 Accounting for Merchandising Businesses Obj 1 Merchandise Operations Distinguish the activities and financial statements Prior chapters described and illustrated how businesses report their financial of a service business from condition and changes in financial condition using the cash and accrual bases of those of a merchandising accounting. Those chapters focused on service businesses. This chapter describes business. and illustrates the accounting for merchandise operations.1 The activities of a service business differ from those of a merchandising Survey of Accoubnutsiinnge,s sS.i xTthhe Esed itdiiofnfe,r eisn cdeess iagrnee dil lufostrr aat eodn ein-t etrhme ifnotlrloowduincgto cryo ndensed income accounting cousrtsaete. mWernitttse:n for students who have no prior knowledge of accounting, this text emphasizes how managers, investors, and other business Service Business Merchandising Business stakeholders use accounting reports. It provides an overview of the basic topics in financial and managerial accounFeteisn ega,r nwedithout the extr$aXXnXeous acScaloeus nting principles $XXX Operating expenses –XXX Cost of merchandise sold –XXX topics that must be skipped or otherwise modified to fit into a one-term course. Net income $XXX Gross profit $XXX Operating expenses –XXX Hallmark Features Net income $XXX The revenue activities of a service business involve providing services to The sixth edition ofc uthstios mteexrst . cOonnt itnhuee isn ctoo meme psthaatesmizee net lefomr ean tsse drveiscieg nbeuds intoe shs,e ltph e revenues from instructors and enhsaenrcveic eths ea rlee raerpnoinrtge de xaps efereies necaer noefd .s Ttuhdee onptse.r aTthinegs ee xfpeeantuseres si nicnu-rred in providing clude the followingt:he services are subtracted from the fees earned to arrive at net income. In contrast, the revenue activities of a merchandising business involve the • Integrated Financial Statement Framework shows how transactions impact buying and selling of merchandise. A merchandising business first purchases each of the three primary financial statements and stresses the integrated na- merchandise to sell to its customers. When this merchandise is sold, the revenue ture of accounting. is reported as sales, and its cost is recognized as an expense. This expense is • Infographic art examples help students visualize important accounting concepts within the chapter. The Operating Cycle The operations of a merchandising business involve the pur- operating cycles than others because of the nature of their chase of merchandise for sale (purchasing), the sale of the products. For example, a jewelry store or an automobile products to customers (sales), and the receipt of cash from dealer normally has a longer operating cycle than a con- customers (collection). This overall process is referred to as sumer electronics store or a grocery store. Businesses with the operating cycle. Thus, the operating cycle begins with longer operating cycles normally have higher profit mar- spending cash, and it gins on their products ends with receiving than businesses with cash from customers. shorter operating cy- The operating cycle for cles. For example, it is Cash a merchandising busi- not unusual for jewelry ness is shown to the Collection stores to price their right. Operating cycles Purchasing jewelry at 30%–50% The for retailers are usually above cost. In contrast, shorter than for manu- Operating Cycle grocery stores operate ftaacilteursre prsu rcbheacsaeu sgeo ordes- ning 2013 ARc eccoeui vnatsb le omna rgvienrsy, osfmteanll bperloofwit in a form ready for Lear Products 5%. Grocery stores sale to the customer. ge make up the differ- Of course, some retail- nga Sales ence by selling their Ce ers will have shorter © products more quickly. 1. The closing process, which is not illustrated, is similar to that for a service business, which is referenced in Chapter 3, footnote 3, on iii page 105. CHE-WARREN_SURVE-11-0704-SE-FM.indd 3 21/12/11 11:32 AM CHE-WARREN_SURVE-11-0704-004.indd 132 13/12/11 10:33 PM Chapter 7 Fixed Assets and Intangible Assets 271 Key Terms Accelerated depreciation method A deprecia- Fixed assets Long-lived or relatively permanent tion method that provides for a higher depre- tangible assets that are used in the normal business ciation amount in the first year of the asset’s operations; sometimes called plant assets. use, followed by a gradually declining amount Goodwill An intangible asset of a business that of depreciation. is created from favorable factors such as location, Amortization The periodic transfer of the cost product quality, reputation, and managerial skill, of an intangible asset to expense. as verified from a merger transaction. Book value The cost of a fixed asset minus Intangible assets Long-lived assets without accumulated depreciation on the asset. tangible properties that are used in the operations Capital expenditures The costs of acquiring of a business and are not held for sale. fixed assets, adding a component, or replacing a Patents Exclusive rights to produce and sell component of a fixed asset. goods with one or more unique features. Copyright An exclusive right to publish and sell Residual value The estimated value of a fixed a literary, artistic, or musical composition. asset at the end of its useful life. Depletion The process of transferring the cost Revenue expenditures Costs that benefit only oPf rnefaatcueral resources to an expense account. the current period or costs incurred for normal Depreciation The systematic periodic transfer maintenance and repairs of fixed assets. of the cost of a fixed asset to an expense account Straight-line method A method of depreciation • Illustrative Problems help students apply what they learn by walking them during its expected useful life. that provides for equal periodic depreciation through problems that cover the most important concepts addressed within Double-declining-balance method A method of expense over the estimated life of a fixed asset. the chapter. depreciation that provides periodic depreciation Trademark A name, term, or symbol used to expense based on the declining book value of a identify a business and its products. fixed asset over its estimated life. Illustrative Problem McCollum Company, a furniture wholesaler, acquired new equipment at a cost of $150,000 at the beginning of the fiscal year. The equipment has an estimated life of five years and an estimated residual value of $12,000. E llen McCollum, the president, has requested information regarding alternative depreciation methods. Instructions Determine the annual depreciation for each of the five years of estimated useful life of the equipment, the accumulated depreciation at the end of each year, and the book value of the equipment at the end of each year by (a) the straight-line method and (b) the double-declining-balance method. Solution Accumulated Depreciation Depreciation, Book Value, Year Expense End of Year End of Year a. 1 $27,600* $ 27,600 $122,400 2 27,600 55,200 94,800 3 27,600 82,800 67,200 4 27,600 110,400 39,600 5 27,600 138,000 12,000 *$27,600 5 ($150,000 2 $12,000) 4 5 b. 1 $60,000** $ 60,000 $ 90,000 2 36,000 96,000 54,000 3 21,600 117,600 32,400 4 12,960 130,560 19,440 5 7,440*** 138,000 12,000 **$60,000 5 $150,000 3 40% ***The asset is not depreciated below the estimated residual value of $12,000. • “Integrity, Objectivity, and Ethics in Business” features describe real-world dilemmas, helping students apply accounting concepts within an ethical con- CHE-WARREN_SURVE-11-0704-007.indd 271 12/12/11 5:10 PM text, using integrity and objectivity. 230 Chapter 6 Receivables and Inventories Integrity, Objectivity, and Ethics in Business wheRe’s The boNus? 3 Managers are often given bonuses based on reported earn nuses. Ethically, managers should select accounting proce 1 20 ings numbers. This can create a conflict. LIFO can improve dures that will maximize the value of the firm, rather than g nin the value of the company through lower taxes. However, in their own compensation. Compensation specialists can help Lear periods of rising costs (prices), LIFO also produces a lower avoid this ethical dilemma by adjusting the bonus plan for e gag earnings number and therefore lower management bo the accounting procedure differences. n Ce © iv The rules used for external financial reporting need not be the same as those used for income tax reporting. One exception to this general rule is the use of LIFO. If a company elects to use LIFO inventory valuation for tax purposes, then the company must also use LIFO for external financial reporting. This is called the LIFO conformity rule. Thus, in periods of rising prices, LIFO offers an income tax savings because it reports the lowest amount of net income of the three methods. CHE-WARREN_SURVE-11-0704-SE-FM.indd 4 21/12/11 11:32 AM Many managers elect to use LIFO because of the tax savings, even though the reported earnings will be lower. Under LIFO, the ending inventory on the balance sheet may be quite different from its current replacement cost (or FIFO estimate).4 In such cases, the financial statements will include a note that states the estimated difference between the LIFO inventory and the inventory if FIFO had been used. This difference is called the LIFO reserve. An example of such a note for Deere & Company is shown below. Most inventories owned by Deere & Company and its United States equipment subsidiaries are valued at cost, on the LIFO basis. . . . If all inventories had been valued on a FIFO basis, estimated inventories by major classification at October 31 in millions of dollars would have been as follows: INVENTORIES 2010 2009 Raw materials and supplies $1,201 $ 940 Workinprocess 483 387 Finished machines and parts 2,777 2,437 Total FIFO value 4,461 3,764 Less (LIFO reserve) adjustment to LIFO value 1,398 1,367 Inventories $3,063 $2,397 As shown above, the LIFO reserve may be quite large. For Deere & Company, the LIFO reserve is over 30% ($1,398 4 $4,461) of the total FIFO inventory for 2010. The wide differences in the percent of LIFO reserve to FIFO are a result of two major factors: (1) price inflation of the inventory and (2) the age of the inventory. Generally, old LIFO inventory combined with rapid price inflation will result in large LIFO reserves. If a business sells some of its old LIFO inventory, the LIFO reserve is said to be liquidated. Since old LIFO inventory is normally at low prices, selling old LIFO inventory will result in a lower cost of merchandise sold and a higher gross profit and net income. Whenever LIFO inventory is liquidated, investors and analysts should be care- ful in interpreting the income statement. In such cases, most investors and analysts will adjust earnings to what they would have been under FIFO. 4. The FIFO estimate is replacement cost, which is often similar to FIFO. CHE-WARREN_SURVE-11-0704-006.indd 230 12/12/11 9:11 PM Chapter 7 Fixed Assets and Intangible Assets 269 Exhibit 9 DISCOVERY MINING CO. Fixed Assets Balance Sheet December 31, 2012 and Intangible Assets in the Balance Sheet Assets Total current assets $ 462,500 Property, plant, and equipment: Cost Accum. Depr. Book Value Land $ 30,000 — $ 30,000 Buildings 110,000 $ 26,000 84,000 Factory equipment 650,000 192,000 458,000 Office equipment 120,000 13,000 107,000 $ 910,000 $ 231,000 $ 679,000 Mineral deposits: Cost Accum. Depl. Book Value Alaska deposit $1,200,000 $ 800,000 $ 400,000 Wyoming deposit 750,000 200,000 550,000 $1,950,000 $ 1,000,000 950,000 Preface Total property, plant, and 1,629,000 equipment Intangible assets: • “How Businesses Make Money” vignettes emphasize practical ways in which Patents $ 75,000 businesses apply accounting concepts when generating profit strategies. Goodwill 50,000 Total intangible assets 125,000 How Businesses Make Money hUB-AnD-SPOkE OR POInT-TO-POInT? Southwest Airlines Co. uses a simple fare structure, featuring low, unrestricted, unlimited, everyday coach fares. These fares are made possible by Southwest’s use of a point-to-point, rather than a hub- M and-spoke, business approach. U C United Airlines, Inc., Delta Air O T SL Lines, and American Airlines em- MAT ploy a hub-and-spoke approach OTO/ in which an airline establishes PH major hubs that serve as connect- P A ing links to other cities. For example, Delta has established major connecting hubs in Atlanta and Salt Lake City. In contrast, Southwest focuses on point-to-point service between select cities with over 450 one-way, nonstop city pairs with an average length of just over 640 miles and average flying time of 1.8 hours. As a result, Southwest minimizes connections, delays, and total trip time. Southwest also focuses on serving conveniently located satellite or downtown airports, such as Dallas Love Field, Houston Hobby, and Chicago Midway. Because these airports are normally less congested than hub airports, Southwest is better able 3 1 0 to maintain high employee productivity and reliable on-time performance. This operating ap- g 2 n proach permits the company to achieve high utilization of its fixed assets, such as its 737 aircraft. ni For example, aircraft are scheduled to minimize time spent at the gate, thereby reducing the Lear e g number of aircraft and gate facilities that would otherwise be required. ga n Ce © • An attractive design engages students and clearly presents the material. The Integrated Financial Statement Framework benefits from this pedagogically sound use of color, as each statement within the framework is shaded to re- CHE-WARREN_SURVE-11i-n07f0o4-0r0c7e.in dtdh e26 9integrated nature of accounting. 12/12/11 5:10 PM Integrated Financial Statement (IFS) Approach This framework clearly demonstrates the impact of transactions on the balance sheet, income statement, and the statement of cash flows and the correspond- ing relationship among these financial statements. The IFS framework moves the student from the simple to the complex and explains the how and why of financial statements. Chapter 1 introduces students to this integration in the form of actual company financials from The Hershey Company, a well-known manufacturer of chocolates. v CHE-WARREN_SURVE-11-0704-SE-FM.indd 5 21/12/11 11:33 AM 16 Chapter 1 The Role of Accounting in Business Preparing the financial statements in the preceding order is important because the financial statements are integrated as follows:5 1. The income and retained earnings statements are integrated. The net income or net loss reported on the income statement also appears on the retained earnings statement as either an addition (net income) to or deduction (net loss) from the beginning retained earnings. 2. The retained earnings statement and the balance sheet are integrated. The retained earnings at the end of the period on the retained earnings statement also appears on the balance sheet as a part of stockholders’ equity. 3. The balance sheet and statement of cash flows are integrated. The cash on the balance sheet also appears as the end-of-period cash on the statement of cash flows. To illustrate, The Hershey Company’s financial statements in Exhibits 6–9 are integrated as follows: 4. Net income of $510 million is also reported on the retained earnings statement as an addition to the beginning retained earnings. 5. Retained earnings of $4,375 million as of December 31, 2010, is also reported on the balance sheet. 6. Cash of $885 million on the December 31, 2010, balance sheet is also reported as the end-of-period cash on the statement of cash flows. Preface The preceding integrations are shown in Exhibit 10. These integrations are important in analyzing (1) financial statements and (2) the impact of transactions ExhiB it 10 Integrated Financial Statements The Hershey Company Balance Sheet December 31, 2010 Stockholders’ Assets Liabilities Equity Cash $ 885 • • • • • • • $4,375 Retained Earnings $4,273 $3,335 $ 938 $4,273 Total Liabilities + Stockholders’ Equity The Hershey Company The Hershey Company The Hershey Company Statement of Cash Flows Income Statement Retained Earnings Statement For the Year Ended Dec. 31, 2010 For the Year Ended Dec. 31, 2010 For the Year Ended Dec. 31, 2010 3 1 2 Operating act. $ 901 Revenues $5,671 Retained earnings, Jan. 1 $4,148 Investing act. (199) Expenses 5,161 Add: Net income $510 Financing act. (71) Net income $ 510 Less: Dividends 283 227 Increase in cash $ 631 Retained earnings, Dec. 31 $4,375 Cash, Jan. 1 254 Cash, Dec. 31 $ 885 5. Depending upon the method of preparing cash flows from operating activities, net income may also appear on the statement of cash flows. This method of preparing the statement of cash flows is called the indirect method. This link and method are illustrated in a later chapter. In addition, Chapter 2 illustrates how cash flows from operating activities may equal net income. Chapter 2 begins with an example format of the integrated framework used throughout the financial chapters. Early in the course, students will gain a greater understanding of how important trends or events Cchaanp tiemr 2p a Bcat saic cAoccmoupnatinngy ’Cso fnicneapntsc ial 47 statements, which add valuable insight into the financial condition of a business. CHE-WARREN_SURVE-11-0704-001.indd 16 14/12/11 2:38 PM Integrated Financial Statement Framework Exhibit 1 Balance Sheet Statement of Income Assets = Liabilities+ Stockholders’ Equity Cash Flows Statement Assets = Liabilities+ Capital Stock+ Retained Earnings Transactions XXX XXX XXX XXX XXX XXX XXX XXX Statement of Cash Flows Income Statement +/– Operating activities XXX Revenues XXX INTEGRATED +/– Investing activities XXX Expenses XXX FINANCIAL +/– Financing activities XXX Net income or loss XXX STATEMENT Increase or decrease in cash XXX FRAMEWORK Beginning cash XXX Ending cash XXX vi Exhibit 1 also illustrates the importance of the balance sheet as the connecting link between the statement of cash flows and the income statement.2 This integrated financial statement approach for analyzing, recording, and summarizing transactions is illustrated later in this chapter. The integrated financial statement approach shown in Exhibit 1 is an invalu- CHE-WARREN_SURVE-11-0704-SaEb-FlMe.i ntdod o 6l for analyzing transactions and their effects on the financial statements. It is also an aid for analyzing and interpreting a company’s financial statements. This is because, without understanding how a company’s financial statements are integrated, important trends or events may be missed or misinterpreted. To illustrate, assume a company reports net income (profits) on its income statement. As a result, it might be mistakenly concluded that the company’s operations are doing well and no major changes are necessary. In fact, the company might be experiencing a continuing negative net cash flow from operations and thus be headed towards bankruptcy. This is why it is essential to analyze all the financial statements and their integration. Controls The integrated financial statement approach shown in Exhibit 1 has built-in controls to ensure that all transactions are correctly analyzed, recorded, and summarized. These controls include the following:3 1. The accounting equation must balance. 2. The ending cash on the statement of cash flows must equal the cash on the balance sheet. 3. The net income on the income statement must equal the net effects of revenues and expenses on retained earnings. 2. In Chapter 3, the use of the balance sheet to reconcile net cash flows from operating activities with net income is described and illustrated. 3. Additional accounting controls are discussed in Chapter 5. CHE-WARREN_SURVE-11-0704-002.indd 47 14/12/11 3:08 PM Chapter 2 Basic Accounting Concepts 51 mix of assets changes on the balance sheet. Since no revenues or expenses are affected, no entries are made under the Income Statement column. The effects of this transaction on Family Health Care’s financial statements are shown below. Balance Sheet Statement of Income Assets = Liabilities + Stockholders’ Equity Cash Flows Statement Notes Capital Cash + Land = Payable + Stock Balances 16,000 10,000 6,000 c. Purchase of land –12,000 12,000 Preface Balances 4,000 12,000 10,000 6,000 Statement of Cash Flows The primary focus in Chapter 2 is on cash transactions, which helps eliminate confusci. o Innv efostrin sgt udents w–1h2o,0 0m0ay have difficulty determining whether an event or transaction should be recorded. Transaction (d) Transaction (d) During the first month of operations, Family Health Care earned patient fees of During the first month of operations, Family Health Care earned patient fees of $5,500, receiving the fees in cash. $5,500, receiving the fees in cash. The effects of this transaction on Family Health Care’s financial statements are The effects of this transaction on Family Health Care’s financial statements are recorded as follows: recorded as follows: 1. Under the Statement of Cash Flows column, Cash from Operating activities 1. Under the Statement of Cash Flows column, Cash from Operating activities is is increased by $5,500. increased by $5,500. 2. Under the Balance Sheet column, Cash under Assets is increased by $5,500. 2. Under the Balance Sheet column, Cash under Assets is increased by $5,500. To balance the accounting equation, Retained Earnings under Stockholders’ To balance the accounting equation, Retained Earnings under Stockholders’ Equity is also increased by $5,500. Equity is also increased by $5,500. 3. Under the Income Statement column, Fees earned is increased by $5,500. 3. Under the Income Statement column, Fees earned is increased by $5,500. This transaction illustrates an inflow of cash from operating activities by earn- This transaction illustrates an inflow of cash from operating activities by earn- ing revenues (fees earned) of $5,500. Retained Earnings is increased under Stock- ing revenues (fees earned) of $5,500. Retained Earnings is increased under Stock- holders’ Equity by $5,500 because fees earned contribute to net income and net holders’ Equity by $5,500 because fees earned contribute to net income and net income increases stockholders’ equity. Since fees earned are a type of revenue, income increases stockholders’ equity. Since fees earned are a type of revenue, Fees earned of $5,500 is also entered under the Income Statement column. Fees earned of $5,500 is also entered under the Income Statement column. The effects of this transaction on Family Health Care’s financial statements The effects of this transaction on Family Health Care’s financial statements are shown below. are shown below. Balance Sheet Statement of Income Assets = Liabilities + Stockholders’ Equity Cash Flows Statement Notes Capital Retained Cash + Land = Payable + Stock + Earnings Balances 4,000 12,000 10,000 6,000 d. Fees earned 5,500 5,500 d. Balances 9,500 12,000 10,000 6,000 5,500 Statement of Cash Flows Income Statement d. Operating 5,500 d. Fees earned 5,500 Sixth Edition Changes and Enhancements • Designed for today’s students, the sixth edition’s new full-color design enhances CHE-WARREN_SURVE-11-0704-002.indd 51 13/12/11 10:11 PM the presentation of integrated financial statements, clarity of graphs and illus- trations, and invites student engagement. • This edition uses an innovative, high-impact writing style that emphasizes topics concisely and clearly. Direct sentences, concise paragraphs, numbered lists, and step-by-step calculations provide students with an easy-to-follow structure for learning accounting without sacrificing content or rigor. • All real-world company data have been updated including The Hershey Company, Home Depot, Starbucks, and Microsoft. All real-world company names are identified vii CHE-WARREN_SURVE-11-0704-SE-FM.indd 7 Preface in blue bold face color font as shown in the preceding sentence. All other names, including individuals and companies, are fictitious, and any resemblance to existing individuals or companies is a coincidence. • LinkedIn, Twitter, and Apple are companies that are newly featured in several chapter introductions. • The “International Connections” feature has been added to select chapters, highlighting key differences between international accounting standards and U.S. GAAP. 266 Chapter 7 Fixed Assets and Intangible Assets International Connection DEvElOPMEnT COSTS UnDER IFRS In the United States research and development costs must or sell the asset. Whether development costs are recorded 3 be expensed in the period in which they are incurred. IFRS, as an asset or expensed can have a significant impact on 1 20 however, allows certain development costs to be recorded the financial statements. For example, Nokia Corporation g nin as an asset if specific criteria are met. Included in the criteria reported €40 million of development costs as an asset on its Lear is technical feasibility completing the development of the December 31, 2010, balance sheet. [€ stands for the euro, the e gag intangible asset and whether the company intends to use common currency of the European Economic Union.] n Ce © • Company names, numerical data, and solutions to all end-of-chapter exercises A copyright that is purchased is recorded at the price paid for it. Copyrights are and problems have been extensively revised to create unique course content. amortized over their estimated useful lives. A trademark is a name, term, or symbol used to identify a business and its Coke® is one of products. Most businesses identify their trademarks with the symbol ® in their Technology the world’s most advertisements and on their products. recognizable trademarks. Under federal law, businesses can protect their trademarks by registering them As stated in a recent issue of Life Magazine, for 10 years and renewing the r•eg iCsternagtiaogne fNoOr W10T-y™ea—r Jpuesrti oWdsh. aLti kYeo au cNopeeydri gthot , “Two-thirds of the earth the legal costs of registering a tradKenmoawrk aarned r eDcoor dNedO aWs !a nC eanssgeat.geNOW for is covered by water; If a trademark is purchased froWm aarnroenth’se rS buursvienye sosf, Aitsc ccoousnt tiisn rge cios radne do nalsi naen the rest is covered by asset. In such cases, the cost of theh toramdeewmoarrkk siosl ucotinosni dthearet dd etloiv hearsv eb eatnte irn sdtuedfiennitte Coke. If the French are known for wine and useful life. Thus, trademarks are nootu atmcoomrteizs—edN. IOnWste! aCde, ntgraadgeemNOarWks ianrcel uredveise wtheed the Germans for beer, periodically for impaired value. Wfohlelno wai ntgra:demark is impaired, the trademark America achieved global should be written down and a loss recognized. • Homework, including algorithmic variations with detailed feedback. beverage dominance with fizzy water and • New Conceptual Conversions are designed to make conceptual material as- Goodwill caramel color.” signable and gradable. Now it is possible to assign questions that ask “why” or “explain” in an online homework platform! Goodwill refers to an intangible asset of a business that is created from such •f aIvno rCaebnleg afgaectNoOrsW a,s i tl oisc aptoiosnsi,b pler otod upcrto qviudael itFye, erdebpauctka ttioo ns,t uadnedn tms aanftaegr earnia li nsiktiialll . Goatotdemwipllt . aClleonwgsa gae bNuOsWine pssr otvoi deeasr ntw ao g lreevaetelsr oraf tfee eodf braectku rnth atht aann ninosrtmruacl.tor has thGee pnoerwaellry toac tcuerpnt eodn aocrc oouffn.ting principles (GAAP) allow goodwill to be re- eBay recorded an impairment of $1.39 •c oTrdhee df irosnt loyf itfh iet lies voebl joefc tFiveeeldyb dacekte trhmaitn Ceedn bgya gae NtrOanWsa pcrtioovnid. eAsn, Cehxeacmkp Mley oWf osurkc,h billion in the goodwill a gtriavness ascttuiodne nists thaed dpituiorcnhaal seg uoidf aan cbeu sainneds se xapt laa npartiicoen inw iethxoceust s goivf inthge afwaiar yv athluee created from its purchase ofa intssw neert. aTshseist sh (ealspsse tgsu –id leia bthilei tisetsu)d. eTnht et oe xacrersivse i sa tr etchoer dceodr reacs t gaonosdwweirl,l aen.gd., rief - of Skype™. pothrteeyd aarse a“no fifn ttraancgki.b”le asset. • Post-Submission level feedback provides student with the correct answer and enough information to understand why the answer is correct and why their Integrity, Objectivity, and Ethics in Business viii 21ST CEnTURY PIRATES Pirated software is a major concern of software companies. computers. The Business Software Alliance (BSA) repre- For example, during a recent global sweep, Microsoft Cor- sents the largest software companies in campaigns to in- poration seized nearly 5 million units of counterfeit Micro- vestigate illegal use of unlicensed software by businesses. 3 soft software with an estimated retail value of $1.7 billion. The BSA estimates software industry losses of nearly $12 bil- 1 CHE-WARREN_g 20SURVE-U11.-S0.7 0c4o-SpEy-rFiMg.hintd dl a w8s and practices are sometimes ignored or lion annually from software piracy. Employees using pirated 21/12/11 11:33 AM n ni disputed in other parts of the world. software on business assets risk bringing legal penalties to Lear Businesses must honor the copyrights held by software themselves and their employers. e g ga companies by eliminating pirated software from corporate n Ce © CHE-WARREN_SURVE-11-0704-007.indd 266 12/12/11 5:10 PM