Financial Reporting, Financial Statement Analysis and Valuation
8th Edition
ISBN: 9781285190907
Author: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher: Cengage Learning
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Sandhill Industries has several assets as part of a cash, generating unit that have limited use due to changing market trends and
declining demand for the product produced by these assets. Management estimates that the carrying value of these assets is $86600
and the assets have no other use. The company intends on producing this product for three more years prior to disposing of the assets.
The net future cash flows related to the product production and sale of the equipment is $87600, while the present value of the cash
flows is $81950. The fair value less the cost of disposal of the assets is estimated at $71300. What is the value of the impairment loss
under the rational entity model?
O $0, there is no impairment loss
O $4650
O $15300
O $5450
Yuan Inc. has a large piece of machinery, and management has determined there is potential impairment. This piece of machinery has
independent cash inflows. The following information relates to the machine:
• Net book value is $18 million.
• The machine could be sold for $10 million less a 11% commission.
• If the company was forced to sell immediately, the proceeds would likely be $8 million.
• If the machine continues to be used in production, it is anticipated to generate $4 million of cash flows for the next five years. It
would require annual maintenance costs of $300,000 a year. The equipment could be sold for $100,000 at the end of the five
years.
• Assume Yuan has a discount rate of 9%.
(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided. Round time value factor to 5 decimal
places.)
Required:
Is the machine impaired?
O Yes O
O No
If so, what is the amount of the impairment loss? (Enter answer in whole dollars, not in million.)
ok
D
ences
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
Accumulated depreciation
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
The fair value of the Arizona plant is estimated to be $14 million.
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) $15 million
instead of $16.2 million and (4) $24.35 million instead of $16.2 million.
Complete this question by entering your answers in the tabs below.
Req 1
Req 2
Impairment loss
Req 3 and 4
Determine the amount of…
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Financial Reporting, Financial Statement Analysis and Valuation
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