Assume the same facts as in P8-11, except that the FMVs for the inventory and fixed assets of Rachel are not as precisely specified. That is, appraisers have indicated that the FMV of the inventory is between $65,000 and $75,000 and that the FMV of the fixed assets is between $115,000 and $125,000. You, as the accountant for Rice and Associates, can use any value within theses ranges to record the acquisition.

REQUIRED:

a. Assume that you wish to maximize reported income in the next period. What dollar amounts would you allocate to Rachel’s inventory, fixed assets, and goodwill when recording the acquisition? Explain.

b. Assume that you wish to minimize reported income in the next period (e.g., when preparing the transaction for tax purposes). What dollar amounts would you allocate to Rachel’s inventory, fixed assets, and goodwill when recording the acquisition? Explain.