Pearson eText Intermediate Accounting -- Instant Access (Pearson+)
3rd Edition
ISBN: 9780136946649
Author: Elizabeth Gordon, Jana Raedy
Publisher: PEARSON+
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 12, Problem 12.5BE
Indefinite-Life Intangible Asset Impairment. Genius Auto Malls recently conducted its annual impairment review of the value of its trademark (an indefinite-life intangible asset), which it currently carries at $2,500,000. Evidence indicates that the trademark may be impaired. Genius estimates the future cash flows related to the trademark for the next 5 years as follows:
| Future Period | Cash-Flow Projection |
| Year 1 | $ 800,000 |
| Year 2 | 700,000 |
| Year 3 | 460,000 |
| Year 4 | 140,000 |
| Year5 | 100,000 |
| Total | $2,200,000 |
The company estimates that the fair value of the trademark is $1,700,000. Determine whether the trademark is impaired. If so, what is the amount of the impairment loss?
Expert Solution & Answer
Learn your wayIncludes step-by-step video
schedule01:47
Students have asked these similar questions
On January 1, 2020, Downtown Company acquired the
following intangible assets:
A trademark for P2,000,000.
The trademark has a remaining legal life of 8 years. The
trademark will be renewed in the future indefinitely without
problem.
A patent for P6,000,000. The patent has an economic life for
just 5 years.
On December 31, 2020, the intangible assets are tested for
impairment.
The trademark is now expected to generate cash flows of
just P120,000 per year.
The cash flows expected to be generated by the patent amount
to P1,000,000 annually for each of the next 4 years.
The appropriate discount rate for all intangible assets is 8%.
The present value of an ordinary annuity of 1 at 8% for 4
periods is 3.31.
1. What is the total impairment loss on trademark?
a. 2,000,000
b. 1,500,000
500,000
d.
с.
2. What is the impairment loss on patent?
a. 2,000,000
b. 4,800,000
c. 2,690,000
d. 1,490,000
Genius Auto Malls recently conducted its annual impairment review of the value of its trademark (an indefinite-life
intangible asset). The following information is given:
Trademark-carrying value
Estimated fair value of the
trademark
$2,500,000
$1,700,000
Genius Auto Mall estimates the future cash flows related to the trademark for the next 5 years as follows.
Future Period
Year 1
Year 2
Year 3
Year 4
Year 5
Total
Cash-Flow Projection
$800,000
700,000
460,000
140,000
100,000
$2,200,000
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 $8,000
Chapter 12 Solutions
Pearson eText Intermediate Accounting -- Instant Access (Pearson+)
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...
Additional Business Textbook Solutions
Find more solutions based on key concepts
Quick ratio and current ratio (Learning Objective 7) 1520 min. Consider the following data: COMPANY A B C D Cas...
Financial Accounting, Student Value Edition (5th Edition)
Pierce Company had the following costs: Calculate the unit product cost using absorption costing and variable c...
Horngren's Financial & Managerial Accounting, The Managerial Chapters (6th Edition)
Discussion Questions 1. What characteristics of the product or manufacturing process would lead a company to us...
Managerial Accounting (4th Edition)
(Record inventory transactions in the periodic system) Wexton Technologies began the year with inventory of 560...
Financial Accounting (11th Edition)
LO 4,6 (Learning Objective 4, 6: Analyze alternative plans for raising money) United Financial Services is cons...
Financial Accounting (12th Edition) (What's New in Accounting)
E2-13 Identifying increases and decreases in accounts and normal balances
Learning Objective 2
Insert the mis...
Horngren's Accounting (12th Edition)
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
- Referring to PA7 where Kenzie Company purchased a 3-D printer for $450,000, consider how the purchase of the printer impacts not only depreciation expense each year but also the assets book value. What amount will be recorded as depreciation expense each year, and what will the book value be at the end of each year after depreciation is recorded?arrow_forwardComprehensive: Acquisition, Subsequent Expenditures, and Depreciation On January 2, 2019, Lapar Corporation purchased a machine for 50,000. Lapar paid shipping expenses of 500, as well as installation costs of 1,200. The company estimated that the machine would have a useful life of 10 years and a residual value of 3,000. On January 1, 2020, Lapar made additions costing 3,600 to the machine in order to comply with pollution-control ordinances. These additions neither prolonged the life of the machine nor increased the residual value. Required: 1. If Lapar records depreciation expense under the straight-line method, how much is the depreciation expense for 2020? 2. Assume Lapar determines the machine has three significant components as shown below. If Lapar uses IFRS, what is the amount of depreciation expense that would be recorded?arrow_forwardThe following intangible assets were purchased by Hanna Unlimited: A. A patent with a remaining legal life of twelve years is bought, and Hanna expects to be able to use it for six years. It is purchased at a cost of $48,000. B. A copyright with a remaining life of thirty years is purchased, and Hanna expects to be able to use it for ten years. It is purchased for $70,000. Determine the annual amortization amount for each intangible asset.arrow_forward
- On December 31, Year 1, Brown Brothers purchased machine A for $770,000 and machine B for $300,000. The machines are depreciated on the straight-line basis over 10 years with no salvage value. Brown reviews its assets for impairment annually. While doing the U.S. GAAP impairment analysis at year-end of Year 6, Brown determines that the expected future cash flows are $70,000 per year from machine A and $40,000 per year from machine B over the remaining lives of the assets. At December 31, Year 6, the fair values of machines A and B are $300,000 and $180,000, respectively. What amount of impairment loss should Brown report on its Year 6 income statement under U.S. GAAP? O A. $50,000 B. $85,000 O C. $35,000 OD. $0arrow_forward8. ABC Company purchased a building on January 1, 2018 for P10, 000,000. The building has been depreciated using the straight-line method with a 25-year useful life with no residual value. On December 31, 2021, ABC is evaluating the building for possible impairment. The building has a remaining useful life of 15 years and is expected to generate cash inflows of P700,000 per year. The applicable discount rate is 8%. Round off present value factor to two decimal places. The fair value of the building on December 31, 2021 is P5, 300,000. What amount should be recognized as impairment loss on December 31, 2021?arrow_forward5. DEF Company purchased a building on January 1, 2018 for P10, 000,000. The building has been depreciated using the straight-line method with a 25-year useful life with no residual value. On December 31, 2021, DEF is evaluating the building for possible impairment. The building has a remaining useful life of 15 years and is expected to generate cash inflows of P700,000 per year. The applicable discount rate is 8%. Round off present value factor to two decimal places. The fair value of the building on December 31, 2021 is P5, 300,000. What is the recoverable amount of the asset?arrow_forward
- An intangible asset is acquired on January 1, 2018, for P500,000 while it has a legal life of 15 years, due to rapidly changing technology, management estimates a useful life of only 5 years. At January 1, 2019, management is uncertain that the process can actually be made economically feasible and decides to write-down the intangible asset to an estimated market value of P150,000 with no change in its remaining useful life. On January 1, 2020, having perfected the related production process, the asset is now appraised at a sound value of P600,000. Under the revaluation model, what amount should be reported in the shareholder's equity as a result of revaluation? а. Р-0- b. P187,500 с. Р250,000 d. P300,000 Please include a step-by-step explanation and solution.arrow_forwardAn intangible asset is acquired on January 1, 2018, for P500,000 while it has a legal life of 15 years, due to rapidly changing technology, management estimates a useful life of only 5 years. At January 1, 2019, management is uncertain that the process can actually be made economically feasible and decides to write-down the intangible asset to an estimated market value of P150,000 with no change in its remaining useful life. On January 1, 2020, having perfected the related production process, the asset is now appraised at a sound value of P600,000. Under the revaluation model, what amount should be reported in the shareholder's equity as a result of revaluation? а. Р-0- b. P187,500 с. Р250,000 d. P300,000arrow_forwardOn March 1, 2020, Peggy's Cafe acquired equipment for $220.000. The estimated life of the equipment is 5 years or 80,000 hours. The estimated residual value is $20.000. What is the depreciation for 2020), if Peggy's Cafe uses the asset 14,200 hours and uses the activity based depreciation method? (round to the nearest dollar) $29.583 $32.542 Ⓒ$35.500 $39.050 None of the above.arrow_forward
- On December 31, 2020, Zari Company acquired the following intangible assets:• A trademark for P3,000,000. The trademark has 8 years remaining in its legal life. It is anticipated that the trademark will be renewed in the future, indefinitely, without problem. ,• A patent for P2,000,000. Because of market conditions, it is expected that the patent will have economic life for just 5 years, although the remaining legal life is 10 years.Because of a decline in the economy, the trademark is now expected to generate cash flows of just P120,000 per year. The useful life of the trademark still extends beyond the foreseeable horizon. The cash flows expected to be generated by the patent are P500,000 in 2022, P600,000 in 2023, P400,000 in 2024 and P500,000 in 2025. The appropriate discount rate for all intangible assets is 6%. The present value of 1 at 6% for one period is 0.94, for two periods is 0.89, for three periods is…arrow_forwardOn January 1, 2022, Christine Company acquired a trademark for P3,000,000. The trademark has eight years remaining in the legal life. It is anticipated that the trademark will be renewed in the future indefinitely without problem. On December 31, 2022, the trademark is assessed for impairment. Because of a decline in economy, the trademark is expected to generate cash flows of just P120,000 annually. The useful life of the trademark still extends beyond the foreseeable horizon. The appropriate discount rate is 6%. What amount should be recognized as impairment loss on trademark for 2022? A. 1,000,000 B. 2,000,000 C. 3,000,000 D. Zeroarrow_forwardOn April 8, 2018, Dreamland Park purchased a ferris wheel for $300,000. The estimated life of the ferris wheel was 10 years, with an estimated residual value of $60,000. The service life in terms of output is estimated at 30,000 hours of operation. Compute the depreciation on this ferris wheel in 2018 and 2019 using the following methods. 2018 2019 Straight-line (with half-year convention) $4 b 200%-declining-balance (with half-year convention) %24 150%-declining-balance (with balf-year convention) %24 Units-of-output method (hours of operation: (2,600 in 2010 and 6,000 in 2011) Straight-line (with depreciation calculated to the nearest whole month)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Accounting for Derivatives_1.mp4; Author: DVRamanaXIMB;https://www.youtube.com/watch?v=kZky1jIiCN0;License: Standard Youtube License
Depreciation|(Concept and Methods); Author: easyCBSE commerce lectures;https://www.youtube.com/watch?v=w4lScJke6CA;License: Standard YouTube License, CC-BY