[ASSET IMPAIRMENT] On 12/31/09, the Stevens Co. had an asset with cost of $10,00

Question

[ASSET IMPAIRMENT] On 12/31/09, the Stevens Co. had an asset with cost of $10,000 and accumulated depreciation of $6,000. Because of changes in technology, the auditor inquired as to the expected future cash flows from the asset. The Company responded that total estimated future cash flows attributable to the asset amounted to $3,000. On 12/31/09, the fair market value of the asset was $2,800.

17. Is the asset impaired?

a. yes      b. no

18. What is the amount of loss due to impairment?

a. 2,800         b. 1,200        c. 1,000        d. there is no need to record a loss due to impairment

[Depreciation Method] A machine was purchased on 1/1/09 for $80,000. Estimated residual value = $10,000. Estimated life = 20 years. Required: What is the amount of depreciation expense for the second year of the asset’s life

19. Under the Straight-line depreciation method.

a. 4,000             b. 3,500           c. 8,000

20. Under the double-declining balance method.

a. 8,000             b. 7,200          c.4,000

Explanation / Answer

Gross 10000 Accumalated Depreciation 6000 Net 4000 Recoverable Value Net Selling Price 2800 Value in Use 3000 Lower of Above two 2800 Recoverable Value Hence Impairment Loss 1200 17 (a)Yes, Since the Recoverable Value is lower than Net Book Value; It can be Said the Asset is Imparied 18 (b) 19 (b) 1/1/2009 80000 Cost 10000 Residual Value 70000 Net deprecaible Amount SLM 3500 pa 20 (b) Dep for first year under double declining method 8000 0.1 Opening Book value for 2nd year 72000 Dep for Second year under double declining method 7200 Thank you

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