Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 12.1E
Tangible Asset Impairment. Henne Optical Corporation reported the following information regarding long-term operating assets for its Lens Manufacturing Operations:
| Description | Canning Value | Estimated Fair Value |
| Factory building (used in several segments) | $10,000,000 | |
| Less: |
(4,500,000) | |
| Net book value | $ 5,500,000 | $ 8,900,000 |
| Land | $ 7,000,000 | $14,000,000 |
| Lens manufacturing equipment | $ 2,100,000 | |
| Less: Accumulated depreciation | (600,000) | |
| Net book value | $ 1,500,000 | $ 1,100,000 |
| Lens polishing equipment | $ 3,000,000 | |
| Less: Accumulated depreciation | (1,200,000) | |
| Net book value | $1,800,000 | $ 1,625,000 |
| General factory equipment (used in several segments) | $6,500,000 | |
| Less: Accumulated depreciation | (4,000,000) | |
| Net book value | $ 2,500,000 | $ 2.400.000 |
| Delivery trucks (used in several segments) | $ 1,750,000 | |
| Less: Accumulated depreciation | (300,000) | |
| Net book value | $1,450,000 | $ 1,125,000 |
| Total net fixed assets | $19,750,000 |
Recent advances in technology have rendered the company’s lens manufacturing operations nearly obsolete. Management projects the following future cash flows for its lens manufacturing operations.
| Future Period | Cash-Flow Projection |
| Year 1 | $1,200,000 |
| Year 2 | 750,000 |
| Year 3 | 400,000 |
| Year 4 | 350,000 |
| Year 5 | 300,000 |
| Total | $3,000,000 |
Required
- a. Determine the asset group for purposes of impairment testing and justify your decision.
- b. Compute the impairment loss for the asset group identified in part (a) for the current year, if any.
- c. Prepare the
journal entry to record the impairment loss, if needed.
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Chapter 12 Solutions
Intermediate Accounting (2nd Edition)
Ch. 12 - Prob. 12.1QCh. 12 - Can firms group all property, plant, and equipment...Ch. 12 - Prob. 12.3QCh. 12 - Prob. 12.4QCh. 12 - Do firms follow the same steps for impairment...Ch. 12 - Prob. 12.6QCh. 12 - Prob. 12.7QCh. 12 - Prob. 12.8QCh. 12 - Under IFRS, if a firm recovers an impairment loss...Ch. 12 - Under IFRS, when do firms test plant assets and...
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