Assume that Jordan Enterprises\'s radio broadcast license is renewable at the en

Question

Assume that Jordan Enterprises's radio broadcast license is renewable at the end of each 10-year term and management has provided evidence that approval of the renewal is highly probable. In this case, the broadcast license qualifies as an indefinite-life intangible asset and is not subject to amortization. Therefore, the firm carries the broadcast license at its original cost of $786,000.

On December 31, 2015 the company noted substantial declines in radio advertising revenues over the past year due to expanded satellite radiosubscriptions, Internet broadcasts, and the use of iPod players. Based on the required annual review and consideration of the available impairment indicators, management believes that it is more likely than not that the broadcast license may be impaired. Therefore, the company must test the broadcast license for impairment. Similar broadcast licenses have been sold in auctions for $676,000.

Assuming that renewal of the broadcast license is probable for this indefinite-life intangible asset, analyze the accounting for impairment and prepare the journal entries.

1.) Conduct the impairment test indicated for indefinite-life intangible asset at the end of the year and determine the impairment loss, if any. (If you selected "No" that an impairment loss is not indicated, then leave the impairment loss input cell blank. Show a loss with a parentheses or minus sign.)

2.) Next, prepare the journal entry required to record any impairment loss. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.)

Explanation / Answer

Intangible assets with an indefinite life cannot be amortised since they continue to generate revenues or cash for the company. Such assets will have to be checked for impairment on a yearly basis. Loss if any will be calculated by reducing the amount recoverable from the sale of such asset from the carrying value of the asset. Impairment Loss = ( Carrying amount - Recoverable amount)

1. Impairment loss = ( 786,000 - 676,000) = $110,000

2. Journal Entry for recognition of impairment loss:

Debit Loss on impairment $110,000

Credit Broadcast License $110,000

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