Question

Which of the following events or changes in circumstances will cause a company to review its property, plant, and equipment for impairment?

1. significant change in the way the asset is used.
2. negative cash flow from operating activities.
3. expectation that the asset will more likely than not be disposed of before the end of its useful life.
4. all of these choices.

Sergei Company purchases land for $4,000,000 from which it expects to extract 2,000,000 tons of coal. The estimated residual value is $400,000, and it mines 80,000 tons of coal in the first year. The unit depletion rate used to determine yearly depletion will be

1. $1.80 per ton.
2. $2.00 per ton.
3. $18.00 per ton.
4. $20.00 per ton.

Breezeway Company determines that equipment is impaired, reducing its value by $7,000. The journal entry to record the impairment loss will include

1. a debit to Accumulated Depreciation for $7,000.
2. a debit to Accumulated Depreciation for $3,500 and a credit to Equipment for $3,500.
3. a credit to Loss on Impairment for $7,000.
4. a credit to Accumulated Depreciation for $7,000.

Answer 1

Ans 1 a

significant change in the way the asset is used

Reason:-

Other two are incorrect.

1. Negative cash flow does not mean Impairment unless it is cash generating activity.

2. Asset will not be dispose off within useful life is positive sign

Hence it will not trigger Impairment loss.

Ans 2 a

(4000000-400000)/200000 = 18 per tonne

Ans 3 D

Entry will be

Impairment loss Dr7000

Accumulated Dep Cr7000

Hence, credit to Accumulated Depreciation

Please hit like. In case of doubt please comment.