F012296268 - CASE STUDY Time Warner Takes $25 Billion Hit...

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CASE STUDY Time Warner Takes $25 Billion Hit by Merissa Marr and Nat Worden The Wall Street Journal Jan 08, 2009 http://online.wsj.com/article/SB123133534152760741.html TOPICS: Accounting, Advanced Financial Accounting, Asset Disposal, Goodwill, Impairment SUMMARY: "Time Warner has made a slew of acquisitions since the company's last major write-down in 2002 for the value of AOL and its cable systems...Investors chided AOL last year for the steep $850 million price tag of its Bebo acquisition." Time Warner has announced a $25 billion write down of its assets "to account for the tumbling value of its cable, publishing and AOL businesses." The write down includes goodwill; an investment in Clearwire; a lease restructuring for floors in Manhattan held by Lehman Brothers; an increase in credit loss reserves for bankruptcy filings by retail customers; and charges for a court judgment against Turner Broadcasting. CLASSROOM APPLICATION: Accounting for goodwill and other asset impairments, as well as loss accruals, is covered with this article, including addressing implications for future financial reporting. QUESTIONS: 1. (Introductory) In general, what are the accounting requirements for writing down goodwill and other intangible assets? 2. (Advanced) Refer to the related article. How do companies have "discretion in implementing accounting rules on impairment"? 3. (Introductory) Refer again to the related article. Time Warner says that the impairment charge was prompted by "...the dip in its stock price last year. 'If our stock price was higher we would not have to take this charge..." How is this possible? 4. (Introductory) What assets besides goodwill has Time Warner also written down?
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