General Optic Corporation operates a manufacturing plant in Arizona. Due to a si
ID: 2486277 • 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?
16,600,000
Cost $ 40,500,000 Accumulated depreciation 15,000,000General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value
The fair value of the Arizona plant is estimated to be $15,000,000. Required: 1.Determine the amount of impairment loss.
If a loss is indicated, where would it appear in General Optic’s multiple-step income statement?
Operating expenses Non-operating expenses 3. If a loss is indicated, prepare the entry to record the loss. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)16,600,000
Explanation / Answer
1.
Book Value = $40,500,000 - $15,000,000 = $25,500,000
An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $16,600,000 is less than the book value of $25,500,000.
Impairment Loss = Book Value - Estimated fair value = $25,500,000 - 15,000,000 = $10,500,000
2.
The loss would appear in the income statement as other operating expense.
3.
Impairment loss
$10,500,000
Accumulated depreciation
$15,000,000
Assets
$25,500,000
Impairment loss
$10,500,000
Accumulated depreciation
$15,000,000
Assets
$25,500,000
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