following were the details of the purchase transactions (all in CAD). The first property is a strip
following were the details of the purchase transactions (all in CAD). The first property is a strip mall located in Sausalito, California. The property was appraised at $3 million, with $2 million attributed to land and $1 million to building. The company was informed of high competition for the property and thus decided to pay a premium to win the real estate bid. The purchase price was thus $3.5 million. Management booked 2/3 of the purchase price to land and 1/3 to building. At the end of the year, the company booked an impairment of $500,000 to its land account. The second property that the company purchased was a small ranch located in Napa Valley, California. The property was appraised at $5.5 million, but management bargained with the owners for a purchase price of $5 million. Management believed the $0.5 million qualified as negative goodwill and that they were supposed to book this amount as profit. However, management did not want the amount to show up on the income statement; therefore, they recorded $5.5 million as the acquisition cost of the property and $0.5 million as a contra-asset account-“negative goodwill”-directly below goodwill in the intangible asset section of the balance sheet. The third property the company purchased was a small retail store located in downtown San Francisco. Isabel Rae, the CEO of Hooray, was the original owner of the store and she had paid $300,000 for the property 10 years ago. The property was appraised at $600,000 in 2013. The board of directors decided to buy this property from Isabel Rae at a price of $750,000. The premium paid was intended to compensate Isabel for all the good things she had done for the company over the years. Management booked the property at $300,000, and $450,000 as compensation expense for the company Required: a. Suppose you are hired by an accounting firm to audit the financial statements of Hooray for the fiscal year 2013. Discuss the appropriateness of the accounting treatments with regard to the acquisition of each of the above-mentioned properties b. Publicly traded companies are usually under pressure to maximize income and to increase shareholder wealth. Why do you think Hooray is motivated to decrease its earnings for reasons other than tax?