Determine if rocky-riley needs to make any adjustments

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Problem 1: Rocky-Riley Music Co. purchased the music rights to all musical works written by Bruce Springsteen some years ago for $55 million. Rocky-Riley has never amortized any of the rights, and its current balance sheet shows an intangible asset balance of $55 million related to these rights. Top management at Rocky-Riley Music Co. now believe that its Springsteen musical works will generate $9 million per year of cash and pretax income for the next 10 years, and then it will generate $4 million per year of cash and pretax income over the following 10 years. To clarify, cash and income are expected for the next 20 years. After that, no future cash or pretax income is expected to be earned from the musical rights. Rocky-Riley Music Co. has a current and projected cost of capital of 11 percent and a current and projected effective tax rate of 35 percent. With this information, can you determine if Rocky-Riley needs to make any adjustments to these musical works on its balance sheet before it issues its current financial statements for the year? If so, how much of an adjustment is needed?

Reference no: EM132952416

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