Asset Writedowns
Response to the following problem:
NBC paid $401 million for the rights to televise the 1992 Summer Olympic Games, and it was widely reported that it had a loss of more than $60 million. CBS purchased the rights to the 1992 and 1994 Winter Olympic Games for a combined $543 million. CBS reported a $322 million pretax loss on its baseball and football contracts in 1991.
Required
1. Under what conditions, if any, should NBC and CBS have written-down the value of their assets?
2. Does this situation allow opportunities for earnings management?