General Optic Corporation operates a manufacturing plant in Arizona. Due to a si
ID: 2480356 • 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
If a loss is indicated, where would it appear in General Optic’s multiple-step income statement?
If a loss is indicated, prepare the entry to record the loss
Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $13,500,000 instead of $15,600,000. (Enter your answer in whole dollars.)
Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $21,250,000 instead of $15,600,000.(Enter your answer in whole dollars.)
Cost $ 35,500,000 Accumulated depreciation 14,500,000General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value
15,600,000Explanation / Answer
If the sum of future cash flows is lower thant the carrying value of the asset, the asset is said to be impaired:
2. If a loss is recognized it would appear under Non - operating expenses
3.
Journal entry:
Impairment Loss Dr 7,500,000
To Fixed Asset account 7,500,000
4. There is no impairment loss if the future estimated cash flows is 21,250,000 since it is higher than the carrying value of the asset
Cost 35,500,000 less: A/d 14,500,000 Carrying value 21,000,000 Future cash flows 15,600,000 Impairment loss 5,400,000Related Questions
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