Question

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	$	33,500,000
Accumulated depreciation		14,300,000
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		15,200,000

The fair value of the Arizona plant is estimated to be $11,500,000.

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) $12,500,000 instead of $15,200,000 and (4) $19,750,000 instead of $15,200,000.

Answer 1

Ans Cost $ 33509000 Less! Accumulated Depreciation $ (14,300,000) carrying Amount $ 19, 200,000 Book value) mose Since carrying amount is less than the undiscounted Cash flows the asset is impaired. Higher of fair value and - Recorarable amount = Value muse undiscounted undiscantld Assuming value lure of or lash How Cash has - present is desser than Fair value Impairment Caroying Loss! amount Fair value 19,200,000 (11 500,000) $ 7,700,00 Impairment loss Credit - 2. Journal Entry Impairment Loss Debit $ 7700,oo Arizona Plant All $7,700,000

Carring Amount 19209,000 Farr value Impairment (11 500,000) $ 7,700,000 loss 4. Their will be no impairment hoss undiscounted Cash hows are greater because than Caroying value
Thank you

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