Forbes (July 11, 1988) reports that King World Productions Inc., the $285-million-per-year television syndicator of Jeopardy, Wheel of Fortune, and Oprah Winfrey, reported on its 1987 balance sheet a shareholders’ equity amount of a negative $30 million. The article reports fur¬ ther that “this firm and many like it are proof that traditional accounting methods ... no longer accurately reflect the importance of intangible assets to the service and ‘idea’ industries. . . . King World’s top programs are on the books for only around $3 million—the amortized cost to the company of acquiring the rights to syndicate them—and Wheel of Fortune is on the books for nothing. Yet King World has contracts for these properties in most major U.S. mar¬ kets through 1991 and beyond, which will bring in some $700 million in licensing fees over the next several years.” REQUIRED:

a. Explain how a company can have negative stockholder’s equity and still be a viable entity.

b. What aspect of accounting for intangibles is the Forbes article criticizing?

c. Provide several recommendations on how these accounting problems could be addressed, and also point out some of the trade-offs involved in following your recommendations.