Question

Exercise 11-29 Impairment; property, plant, and equipment [LO11-8]

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	$	39,500,000
Accumulated depreciation		14,900,000
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		16,400,000

The fair value of the Arizona plant is estimated to be $14,500,000.

Required:
1. & 2. Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic’s multiple-step income statement?
3. If a loss is indicated, prepare the entry to record the loss.
4. & 5. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $15,500,000 instead of $16,400,000 and $24,850,000 instead of $16,400,000.

Complete this question by entering your answers in the tabs below.

Req 1 and 2

Req 3

Req 4 and 5

Determine the amount of impairment loss. If a loss is indicated, where would it appear in General Optic’s multiple-step income statement? (Enter your answer in whole dollars.)

	Impairment loss Location on income statement Operating expenses

Req 3

Req 4 and 5

If a loss is indicated, prepare the entry to record the loss. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars.)

Journal entry worksheet

Record the impairment loss.

Note: Enter debits before credits.

	Event General Journal Debit Credit 1 Loss on impairment 0 Accumulated depreciation 0 Plant assets 0 Req 4 and 5 Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is $15,500,000 instead of $16,400,000 and $24,850,000 instead of $16,400,000. (Enter your answers in whole dollars.) Impairment loss 0 Impairment loss 0

Answer 1

Requirement 1:

Book Value= Cost- Accumulated Depreciation

=$39500000- $14900000

=$24600000

An impairment loss is indicated because the estimated undiscounted sum of future cash flows of $16,400,000 is less than the book value $ 24,600,000.

Requirement 2:General Optic’s multiple-step income statement

The amount of loss to be reported

Debit Credit

Book Value $24,600,000

Estimated Fair Value $14,500,000

Impairement Loss $10,100,000

Impairement Loss	$10,100,000
Location on income statement	Operating Expense

The loss would appear in the income statement as an other operating expense

Requirement 3:

Events	Journal Entries	Debit	Credit
1	Loss on impairement	$10,100,000
	Accumulated Depreciation	$14,900,000
	Plant Assets		$25,000,000

  

Requirement 4:

There is an impairement loss because the undiscounted sum of cash flows 15.5$ million is less than the book value of 24.6$ million.

The amount of impairement loss:

Events	Journal Entries	Debit	Credit
1	Fair Value	$14,500,000
	Impairement loss	$10,100,000
	Book Value		$24,600,000

Requirement 5: There is no impairement loss because the undiscounted future cash flows $24,850,000 is greater than the book value $24,600,000.

Events	Journal Entries	Debit	Credit
1	Fair Value	$ 14,500,000
	Impairement loss	$ 0
	Book Value		$24,850,000