INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
3rd Edition
ISBN: 9780136946601
Author: GORDON
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 12.2BE
To determine
To explain: Whether to conduct an impairment test for the current year.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
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
Alfarabi Company has an asset that had an original cost of $560,000 and depreciation taken to date of $240,000.
Management of Alfarabi Company has decided that the asset has suffered an impairment and its expected future net cash
flows total $80,000. Further, the asset has a remaining useful life of 3 years and a salvage value of $15,000. No active market
exists for the asset and its present value of expected future net cash flows is $61,000.
Instructions:
a. Prepare the journal entry Alfarabi Company would make to record the impairment in the value of the asset.
b. How is the gain or loss on this impairment reported in the income statement?
KLM Mining Company constructed a building costing P2, 800,000 on the mine property. The estimated residual value will not benefit the entity and will be ignored for purposes of computing depreciation.
The building has an estimated life of 10 years. The total estimated recoverable output from the mine is 500,000 tons. The production of the first four years of operations was:
First year 100,000 tons
Second year 100,000 tons
Third year Shut down, no output
Fourth year 100,000 tons
Determine the depreciation for the fourth year.
490,000 b. 560,000 c. 210,000 d. 336,000
Chapter 12 Solutions
INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
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...
Ch. 12 - Prob. 12.11QCh. 12 - Prob. 12.12QCh. 12 - Prob. 12.1MCCh. 12 - Prob. 12.2MCCh. 12 - Prob. 12.3MCCh. 12 - Prob. 12.4MCCh. 12 - Prob. 12.5MCCh. 12 - Prob. 12.6MCCh. 12 - Prob. 12.1BECh. 12 - Prob. 12.2BECh. 12 - Prob. 12.3BECh. 12 - Prob. 12.4BECh. 12 - Indefinite-Life Intangible Asset Impairment....Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.10BECh. 12 - Prob. 12.11BECh. 12 - Prob. 12.12BECh. 12 - Prob. 12.13BECh. 12 - Prob. 12.14BECh. 12 - Prob. 12.15BECh. 12 - Prob. 12.16BECh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.19BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.21BECh. 12 - Prob. 12.22BECh. 12 - Prob. 12.23BECh. 12 - Tangible Asset Impairment. Henne Optical...Ch. 12 - Tangible Asset Impairment Loss. Use the same...Ch. 12 - Prob. 12.3ECh. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Tangible Asset Impairment Loss, IFRS. Use the same...Ch. 12 - Prob. 12.7ECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.9ECh. 12 - Assets Held for Disposal. Hattie Corporation...Ch. 12 - Prob. 12.11ECh. 12 - Asset Revaluation, Downwards, IFRS. Lousa Company...Ch. 12 - Tangible Asset Impairment. Chrispian Cookies, Inc....Ch. 12 - Prob. 12.2PCh. 12 - Tangible Asset Impairment. Using the same...Ch. 12 - Prob. 12.4PCh. 12 - Goodwill Impairment, Tangible Fixed Assets, and...Ch. 12 - Tangible Asset Impairment, Potential Reversal,...Ch. 12 - Prob. 12.7PCh. 12 - Prob. 12.8PCh. 12 - Prob. 12.9PCh. 12 - Comprehensive Asset Revaluation Problem (Initial...Ch. 12 - Prob. 12.11PCh. 12 - Judgment Case 1: Impairments of PPE under IFRS...Ch. 12 - Prob. 2JCCh. 12 - Prob. 3JCCh. 12 - Financial Statement Analysis Case 1: Long-Lived...Ch. 12 - Surfing the Standards Case 1: Impairments of PPE...Ch. 12 - Prob. 2SSCCh. 12 - Prob. 1BCCCh. 12 - Basis for Conclusions Case 2: Intangible Assets ...Ch. 12 - Basis for Conclusions Case 3: Goodwill Impairment...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Blake Corporation has determined that one of its machines has experienced an impairment in value. However, the company expects to continue to use the asset for another 3 full years because no active market exists for this machine. Selected information on the impaired asset (on the date that impairment was determined to exist) is provided below. Original cost of the machine $22,000 Carrying amount of the machine 20, 000 Undiscounted future cash flows expected to be generated by the machine 15,000 Fair value of the machine (determined by calculating the present value of the future cash flows expected to be generated by the machine) 12,000 What is the amount of the impairment loss to be recorded by Blake? $3,000 $5,000 $7,000 $8,000arrow_forwardOn May 1, Star Mines Inc. purchased an ore mine for $7,200,000 to access an estimated 3,732,000 tons of ore. The company also incurred development costs of $540,000 related to the mine and purchased equipment for $1,080,000 with a useful life of 15 years and no salvage value. The equipment has alternative uses outside of this mine project. The company is expected to restore the land after mining is complete. The present value of the restoration cost is estimated to be $240,000. The company extracted 432,000 tons of ore during the year and sold 360,000 tons. Hint: For the purchase of this mine, an Asset Retirement Obligation is credited for the present value of restoration costs. Requireda. Record the entry for (1) purchase and development costs of the mine and (2) purchase of equipment on May 1. Assume all purchases were for cash.arrow_forwardA lathe used for the purpose of cutting molded plastics was acquired 10 years ago for a totalexpenditure of RM7,500,000. At the time of acquisition, the machine was projected to have a lifespanof 15 years, and the management's initial estimation, which remains unchanged, posited that theresidual value would be negligible upon the completion of the aforementioned 15-year period. Themachine is subject to depreciation using the straight-line method, resulting in an annual depreciationexpense of RM500,000. As a result, the current book value of the equipment stands at RM2,500,000.According to the report provided by the R&D manager, there is a proposition to acquire a newspecialized machine at a cost of RM12,000,000, which includes expenses for freight and installation.This machine is projected to have a lifespan of five years and is expected to result in a reduction inboth labor and raw material consumption. Consequently, the annual operating costs are anticipatedto decrease from…arrow_forward
- Gates Inc., a calendar year firm, currently uses a plant asset in operations that originally cost $110,000 and has a useful life of eight years and a $10,000 residual value. Gates uses the straight line depreciation method. As an impairment indicator was present, Gates reviewed the asset for impairment. At January 1 of the current year, which is the beginning of the asset's third year of useful life, total remaining cash inflows attributable to the asset are estimated to be $120,000, while total cash outflows in running and maintaining the machine are estimated to be $65,000, Based on quoted prices and the condition of the asset, Gates estimates the fair value of the asset to be $40.000. The cost to sell the asset is approximately $5,000. Gates plans to continue to use the asset in production, although at a much lower rate of utilization. Required a. Record the impairment loss on January 1 of the current year, Date Jan 1 Account Name Date Dec 31 To record met Dr. b. Record depreciation…arrow_forwardJethro Inc. is reviewing its intangible assets for impairment. The accounting team has received the following information on the assets' book value, annual cash flows and fair values: Asset Carrying value Estimated selling Remaining useful life Annual expected cash flows price Patent #1 $80,000 $8,000 $70,000 8 years 15 years Patent #2 $180,000 $15,000 $175,000 License $50,000 Indefinite $ 2,000 $35,000 Selling costs of any intangible asset is expected to be negligible. The company's internal rate of return (IRR) is 5% Required: Test each of the intangible assets for impairment. If the asset is impaired, record impairment. (a) Assuming the company uses ASPE's cost recovery impairment model; and (b) Assuming the company uses IFRS's rational entity impairment model (for the PV of an asset with unlimited life, set n to a very large value like 1000 or the highest value on the annuity table)arrow_forward1) Darling Paper Container, Inc. purchased several machines at a total cost of $300,000. The installation cost for this equipment was $25,000. The firm plans to depreciate the equipment using the MACRS 5-year normal recovery period. Prepare a depreciation schedule showing the depreciation expense for each year. 2) Identify each expense or revenue as a cash flow from operating activities (O), a cash flow from investment activities (I), or a cash flow from financing activities (F). Administrative expenses Rent payment Interest on a note payable Interest on a note receivable Sale of equipment Dividend payment Stock repurchase Sale of finished goods Labor expense Sale of a bond issue Repayment of a long-term debt Selling expenses Depreciation expense Sale of common stock Purchase of fixed assets 3) Please read the “COPING WITH UNCERTAINTY IN THE CASH BUDGET” topic in your book on pages 133-134 before solving this question. Terrel Manufacturing expects stable sales through the…arrow_forward
- a petroleum company has purchased an air cooler for offshore use (asset class 13.2). It has a cost basis of $400,000. With additional options costing $20,000, the cost basis for depreciation purposes is $420,000. Its MV at the end of five years is estimated as $80,000. Assume it will be depreciated under the GDS: a) what is the cumulative depreciation through the end of year three? b) What is the MACRS depreciation in the fourth year? c) What is the BV at the end of year twoarrow_forwarda) Darling Paper Container, Inc. purchased several machines at a total cost of $300,000. The installation cost for this equipment was $25,000. The firm plans to depreciate the equipment using the MACRS 5-year normal recovery period. Prepare a depreciation schedule showing the depreciation expense for each year. b) Identify each expense or revenue as a cash flow from operating activities (O), a cash flow from investment activities (I), or a cash flow from financing activities (F).a. Administrative expensesb. Rent paymentc. Interest on a note payabled. Interest on a note receivablee. Sale of equipmentf. Dividend paymentg. Stock repurchaseh. Sale of finished goodsi. Labor expensej. Sale of a bond issuek. Repayment of a long-term debtl. Selling expensesm. Depreciation expensen. Sale of common stocko. Purchase of fixed assetsarrow_forwardPerez Company acquires an ore mine at a cost of $3,360,000. It incurs additional costs of $940,800 to access the mine, which is estimated to hold 2,400,000 tons of ore. 250,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $480,000. Calculate the depletion expense from the information given. 1. & 2. Prepare the entry to record the cost of the ore mine and year-end adjusting entry. Complete this question by entering your answers in the tabs below. Depletion Expense General Journal X Answer is not complete. Calculate the depletion expense from the information given. Note: Round "Depletion per unit" to 3 decimal places. Cost Salvage Amount subject to depletion Total units of capacity Depletion per unit Units extracted and sold in period Depletion expense $ 4,300,800 (480,000) $ 2,400,000 1.592 250,000 Depletion Expense General Journal >arrow_forward
- Perez Company acquires an ore mine at a cost of $1,680,000. It incurs additional costs of $470,400 to access the mine, which is estimated to hold 1,200,000 tons of ore. 190,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $240,000. Calculate the depletion expense from the information given. 1. & 2. Prepare the entry to record the cost of the ore mine and year-end adjusting entry. Complete this question by entering your answers in the tabs below. Depletion Expense General Journal Calculate the depletion expense from the information given. (Round "Depletion per unit" to 3 decimal places.) Cost Salvage Amount subject to depletion Total units of capacity Depletion per unit Units extracted and sold in period Depletion expensearrow_forwardYour company has purchased a large new trucktractor for over-the-road use (asset class 00.26). It has a cost basis of $173,000. With additional options costing $14,000, the cost basis for depreciation purposes is $187,000. Its MV at the end of four years is estimated as $42,000. Assume it will be depreciated under the GDS: a. What is the cumulative depreciation through the end of year two? b. What is the MACRS depreciation in the third year? c. What is the BV at the end of year one?arrow_forwardPerez Company acquires an ore mine at a cost of $3,640,000. It incurs additional costs of $1,019,200 to access the mine, which is estimated to hold 2,600,000 tons of ore. 260,000 tons of ore are mined and sold the first year. The estimated value of the land after the ore is removed is $520,000. Calculate the depletion expense from the information given. 1. & 2. Prepare the entry to record the cost of the ore mine and year-end adjusting entry. Complete this question by entering your answers in the tabs below. Depletion Expense General Journal Calculate the depletion expense from the information given. (Round "Depletion per unit" to 3 decimal places.) Cost Salvage Amount subject to depletion Total units of capacity Depletion per unit Units extracted and sold in period Depletion expense Complete this question by entering your answers in the tabs below. Depletion Expense…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Asset impairment explained; Author: The Finance Storyteller;https://www.youtube.com/watch?v=lWMDdtHF4ZU;License: Standard Youtube License