General Optic Corporation operates a manufacturing plant in Arizona. Due to a si
ID: 2578284 • 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: Cost Accumulated depreciation General's estimate of the total cash flows to be generated by selling the $44,500,000 15,400,000 17,400,00e products manufactured at its Arizona plant, not discounted to present value The fair value of the Arizona plant is estimated to be $17,000,000. Required: 1. & 2. Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic's multiple-step income statement? 3. If a loss is indicated, prepare the entry to record the loss. 4.&5. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $18,000,000 instead of $17,400,000 and $29,250,000 instead of $17,400,000.Explanation / Answer
Carrying value = Cost - Accumulated depreciation
= 44,500,000 - 15,400,000 = 29,100,000
Non discounted future cash flows = 17,400,000
An asset is impaired if the Carrying value is greater than the non discounted future cash flows
As the carrying value(29,100,000) is greater than the non discounted future cash flows (17,400,000), the asset is impaired.
1&2
Impairment loss = Carrying value - Fair value
= 29,100,000 - 17,000,000
= 12,100,000.
Impairment loss would appear in General Optic's multi-step income statement in Income from continuing operations.
3.
Journal entry
4 & 5.
Impairment loss if the undiscounted futrue cash flows is 18,000,000 :
As the carrying value(29,100,000) is greater than the non discounted future cash flows (18,000,000), the asset is impaired.
Impairment loss = Carrying value - Fair value
= 29,100,000 - 17,000,000
= 12,100,000.
Impairment loss if the undiscounted futrue cash flows is 29,250,000 :
As the carrying value(29,100,000) is lesser than the non discounted future cash flows (29,250,000), the asset is not impaired.
Impairment loss = None.
Impairment loss 12,100,000 Accumulated depreciation 12,100,000Related Questions
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