General Optic Corporation operates a manufacturing plant in Arizona. Due to a si

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.)

If a loss is indicated, where would it appear in General Optic’s multiple-step income statement?

Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $19,500,000 instead of $18,000,000. (Enter your answer in whole dollars.)

Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $32,250,000 instead of $18,000,000.(Enter your answer in whole dollars.)

     Cost $ 47,500,000   Accumulated depreciation 15,700,000

  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

18,000,000 The fair value of the Arizona plant is estimated to be $18,500,000. Required: 1.

Determine the amount of impairment loss. (Enter your answer in whole dollars.)

       2.

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.)        4.

Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $19,500,000 instead of $18,000,000. (Enter your answer in whole dollars.)

       5.

Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $32,250,000 instead of $18,000,000.(Enter your answer in whole dollars.)

     

Explanation / Answer

1.   Recoverable amount:

      Higher of:     Fair value: 18,500,000

                        Value in use: 18,000,000

Carrying value : 47,500,000 - 15,700,000    =     31,800,000

Impairment loss:   31,800,000 - 18,500,000   =   13,300,000

2. Impairmrnt loss is a non operating expense

3. Impairment loss        Dr                     13,300,000

                   To Assets                                                 13,300,000

4. If sum of undiscounted cash flow is 19,500,000 then impairment

Impairment loss:   31,800,000 - 19,500,000   =   12,300,000

5. If sum of undiscounted cash flow is 32,250,000 then impairment

    No Impairment loss since carrying amount is less than recoverable amount

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