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: $37,500,000 14,700,000 16,000,000 Cost Accumulated 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 The fair value of the Arizona plant is estimated to be $13,500,000. Required: 1. Determine the amount of impairment loss. 2. If a loss is indicated, prepare the entry to record the loss. 3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $14,500,000 instead of $16,000,000 and (4) $23,500,000 instead of $16,000,00.

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: $37,500,000 14,700,000 16,000,000 Cost Accumulated 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 The fair value of the Arizona plant is estimated to be $13,500,000. Required: 1. Determine the amount of impairment loss. 2. If a loss is indicated, prepare the entry to record the loss. 3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $14,500,000 instead of $16,000,000 and (4) $23,500,000 instead of $16,000,00.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter8: Investing Activities

Section: Chapter Questions

Problem 16PC

See similar textbooks

Similar questions

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 - $ 32,500,000Accumulated depreciation -14,200,000General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value- 15,000,000 The fair value of the Arizona plant is estimated to be $11,000,000.Required:1. Determine the amount of impairment loss, if any.2. If a loss is indicated, prepare the entry to record the loss.3. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $12,000,000 instead of $15,000,000. 4. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $19,000,000 instead of $15,000,000
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 $ 35.5million Accumulated depreciation $ 14.5million 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 $ 15.6million The fair value of the Arizona plant is estimated to be $12.5 million. Required: 1. Determine the amount of impairment loss. 2. If a loss is indicated, prepare the entry to record the loss. 3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $13.5 million instead of $15.6 million and (4) $21.25 million instead of $15.6 million.
General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand forthe product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquiredthe following information for the assets at the plant:Cost $ 32,500,000Accumulated depreciation 14,200,000General’s estimate of the total cash flows to be generated by selling theproducts manufactured at its Arizona plant, not discounted to present value15,000,000The fair value of the Arizona plant is estimated to be $11,000,000.Required:1. Determine the amount of impairment loss, if any.2. 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. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $12,000,000instead of $15,000,000.5. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is…
Sanders Corporation operates a factory in Arizona. Due to a change in business climate, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: Cost $ 243,000,000 Accumulated depreciation 122,000,000 Estimate of the total cash flows to be generated by selling the productsmanufactured at the Arizona factory, not discounted to present value 110,000,000 Present value of estimated future cash flows 94,000,000 Estimated fair value of the Arizona factory determined by appraisal 90,000,000 Required:1. Determine the amount of impairment loss, if any.2. If a loss is indicated, prepare the entry to record the loss.3. Repeat requirement 1, assuming that Sanders prepares its financial statements according to International Financial Reporting Standards (IFRS). Also assume that the estimated fair value of the factory approximates fair value less costs to sell.
Intella Manufacturing, Inc. has only one plant asset used in production. The asset had a cost of $535,000 and has been depreciated for 2 full years since the date of acquisition. This accounting resulted in a total accumulated depreciation of $220,000. The firm expects the asset to be productive for an additional 3 years and projects the asset's future cash flows to be $132,000 per year. Information about the company's products indicates that the asset might be impaired. Should the firm record an impairment loss for the current year? (Provide supporting computations.) First, calculate the carrying value of the asset using the table below. Less: Carrying value of asset Part 2 Next, conduct an impairment test for the asset using the table below. Step 1: Asset Impairment indicated
ABC has determined that one of its cash generating units (CGU) is impaired. The assets of the CGU at their book value are: Land – 4,000,000; Factory – 1,200,000; Machinery and Equipment – 1,800,000. The value in use of the cash generating unit is P5,500,000. The impairment loss allocated to Machinery and Equipment is? (do not round off the percentage, round off your final answer to the nearest peso)
The company provided the data of PP&E in a cash-generating unit (CGU) as follows: Cost Accumulated Depreciation Equipment A $ 15,000 $ 8,000 Equipment B 30,000 19,000 Equipment C 45,000 23,000 The unit’s fair value less costs to sell was $25,000. The unit’s future cash flows was $32,000, and its present value was $28,000. The company adopted IFRS. Prepare journal entries to record impairment. If the recoverable amount of Equipment C is $19,000, prepare journal entries to record impairment. If the recoverable amount of Equipment C is $24,000, prepare journal entries to record impairment.
Cake Company determined as a result of a plant re-arrangement that there had been a significant change in the manner in which a machinery was going to be used in manufacturing process. Estimated cash inflows from the use of the machinery-P1,750,000 Estimated cash outflows from the use of the machinery-P375,000 Estimated residual value of the machinery at the end of its useful life-P250,000 Estimated income tax payments-P100,000 What total amount should be included as future cash flows in determining the machinery's value in use?
Deep Mines Ltd. of Saskatchewan is contemplating the purchase of equipment to exploit a mineral deposit located on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: 8013403 Cost of new equipment and timbers $264,000 Morking capital required Net annual cash receipts 91,000 122,000 Cost to construct new roads in three years Salvage value of equipment in four years 46,000 50,000 "Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance and so forth. It is estimated that the mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company's discount rate is 20%. Click here to view Exhibit 10-1 and Exhibit 10-2, to determine the appropriate discount factor(s) using tables. Required: 1-6. Determine the NPV of the…
Innovative Inc. has a piece of equipment with a carrying amount of $187,000. Technology has changed, indicating that the machine may be impaired. A new machine with updated technology could be purchased for $358,000. A used machine of similar vintage is listed on-line for $168,000. The estimated discounted cash flows from continuing to use the asset are $156,000. The undiscounted cash flows from the use of the asset are $188,000. The estimated value if the company sold the asset less commission costs is $163,000. Required:1. What is the recoverable amount? The recoverable amount is the of fair value costs of disposal and value in use . The recoverable amount is then compared to the carrying amount of the asset 2. What is the amount of impairment?
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 500,000 Working capital required $ 180,000 Annual net cash receipts $ 195,000 * Cost to construct new roads in year three $ 56,000 Salvage value of equipment in four years $ 81,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 22%. Click here to view Exhibit 14B-1 and Exhibit 14B-2, to determine the appropriate discount factor(s) using tables. What is…
Windhoek Mines, Ltd., of Namibia, is contemplating the purchase of equipment to exploit a mineral deposit on land to which the company has mineral rights. An engineering and cost analysis has been made, and it is expected that the following cash flows would be associated with opening and operating a mine in the area: Cost of new equipment and timbers $ 420,000 Working capital required $ 230,000 Annual net cash receipts $ 165,000 * Cost to construct new roads in year three $ 66,000 Salvage value of equipment in four years $ 91,000 *Receipts from sales of ore, less out-of-pocket costs for salaries, utilities, insurance, and so forth. The mineral deposit would be exhausted after four years of mining. At that point, the working capital would be released for reinvestment elsewhere. The company’s required rate of return is 18%. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables.…