General Optic Corporation operates a manufacturing plant in Arizona. Due to a si
ID: 2447446 • Letter: G
Question
General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant:
General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value
Determine the amount of impairment loss. (Enter your answer in whole dollars.) ?
2) IF a loss was indicated where would it appear in general optic multilpe-step income staement?
A) Operating expenses
B) non-operating expenses
3) If a loss is indicated prepare the journal entry to record the loss if no journal entry is needed note it on the first line
4) Determine the amount of impairment loss assuming that the estimated undiscount sum of true cash flows is 13,000,000 instead of 15,400,000. Enter your answer in whole dollars
Cost $ 34,500,000 Accumulated depreciation 14,400,000General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value
15,400,000Explanation / Answer
Impairment Loss = Carrying value - Fair value
Carrying value = Cost - Accumulated Depriciation = 3450000- 1440000 = 2010000
Fair Value is higher of
Present value of undiscounted cash flows = 1540000
Fair value of asset = 1200000
So, Impairment loss = 2010000 - 1540000 = 470000
Impairment loss should be shown in Non Operating Expenses , since it does not occur in the business regularly.
Impairment Loss Ac Dr 470000
To Asset Ac 470000
If Present value of undiscounted cashflows remain at 1300000 instead of 15.4 L, the answer would be same, since PV would still be higher than Fair Value of Asset.
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