Chapter 11 Impairment of PPE assets (2 pts.) G Saved General Optic Corporation o

ID: 2587198 • Letter: C

Question

Chapter 11 Impairment of PPE assets (2 pts.) G Saved 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: 1.5 points Cost Ac $48,500,000 15,800,000 18,200,000 cumulated depreciation 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 Skipped The fair value of the Arizona plant is estimated to be $19,000,000. 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 $20,000,000 instead of $18,200,000 and $32,950,000 instead of $18,200,000 eBook Complete this question by entering your answers in the tabs below Req 1 and 2 Req 3 Req 4 and 5 Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic's multiple-step income statement? (Enter your answer in whole dollars.) Impairment loss Location on income statement

Explanation / Answer

Answer:

Requirement 1 &2:
Cost = $48,500,000
Accumulated Depreciation = $15,800,000

Book Value = Cost – Accumulated Depreciation
Book Value = $48,500,000 - $15,800,000
Book Value = $32,700,000

As the sum of Future Cash flow is less than the Book Value of the assets, the impairment loss will be recognised.

Impairment Loss = Book Value – Estimated fair value
Impairment Loss = $32,700,000 - $19,000,000
Impairment Loss = $13,700,000

Impairment loss will be shown as operating expenses in Income statement

Requirement 3: Journal Entries

No.

Particulars

Debit

Credit

Impairment Loss Dr.

Accumulated Depreciation Dr.

Assets

$13,700,000

$15,800,000

$29,500,000

Requirement 4&5:

As the undiscounted sum of Future Cash Flow i.e. $20,000,000 is less than the Book Value of $32,700,000, there is a Impairment loss.

Book value = $32,700,000
Estimated fair value = $19,000,000