General Optic Corporation operates a manufacturing plant in Arizona. Due to a si
ID: 2396180 • 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:
The fair value of the Arizona plant is estimated to be $12,500,000.
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 $13,500,000 instead of $15,600,000 and $21,250,000 instead of $15,600,000.
manufactured at its Arizona plant, not discounted to present value 15,600,000
Explanation / Answer
Requirement 1
Book Value = 35,500,000-14,500,000 = 21,000,000
An impairment loss is indicated because the estimated undsicounted sum of future cash flows of $15.6 million is less than the book value of 21.0 million
Requirement 2
The amount of loos to be reported:
Book value
$21,000,000
Estimated fair value
$12,500,000
Impairment Loss
$8,500.000
The loss would appear in the income statement as an other operating expense
Requirement 3
General journal
Debit
Credit
Impairement Loss
8,500,000
Accumulated Depreciation
14,500,000
Assets
23,000,000
Requirement 4
The amount of impairment loss:
Book value
$21,000,000
Estimated fair value
$12,500,000
Impairment Loss
$8,500.000
There is an impairment loss because the undsicounted sum of future cash flows 13.5 million is less then the book values of 21.0 million.
Requirement 5
There is not impairment loss because the undiscounted future cash flows $21,250,000 is greater then the book value of 21.0 million.
Book value
$21,000,000
Estimated fair value
$12,500,000
Impairment Loss
$8,500.000
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