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Category > Management Posted 15 Oct 2017 My Price 8.00

Borstad Company

P11-10  Asset Impairment   On January 1, 2002, the Borstad Company purchased a factory for $180,000 and machinery for

$1 million. It is depreciating the factory over 30 years and the machinery over 20 years, both by the straight-line method to zero residual values. Late in 2007, because of technological changes in the industry and reduced selling prices for its prod- ucts, the company believes that its asset(s) may be impaired and will have a remaining useful life of eight years. The cash flows from the factory and machinery are not separable, and are independent of the company’s other activities. The company estimates that the asset will produce cash inflows of $400,000 and will incur cash outflows of $295,000 each year for the next 8 years. It is not able to determine the fair value of the asset based on a current selling price of the factory and machin- ery. The company’s discount rate is 12%.

Required

1.      Prepare schedules to determine whether, at the end of 2007, the machinery is impaired and, if so, the impairment loss to be recognized.

2.      Prepare the journal entry to record the impairment.

3.      How would your answer to Requirement 1 change if the discount rate was 16% and the cash flows were expected to con- tinue for 6 years?

4.      How would your answer change if management planned to implement efficiencies that would save $10,000 each year?

 

Answers

Maurice Tutor
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Status NEW Posted 15 Oct 2017 11:10 AM My Price 8.00

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