Question

Today is June 30, 2020. WheeWork company owns an office building for which it paid $ 20,000,000 on January 1, 2019, and which currently has Accumulated Depreciation of $ 3,000,000. WheeWork purchased the building to create 500 "work stations" which it rented out the individuals who did not want to purchase or lease office space themself.
Historically, WheeWork was able to rent 80% of their units at a rate of $ 400 per month (i.e. $ 4,800 per year). WheeWork assumed that they would operate the building for a total of 10 years, and then sell the building on January 1, 2029 at an estimated price of $ 28,000,000.
However, the outlook for individual office rental space has changed dramatically, and now WheeWork believes that for the next eight-and-a-half years, going forward, they will only be able to rent 50% of their units ata rate of $ 300 per month (i.e. $ 3,600 per year). Further, the anticipated selling price of the building on January 1, 2029 has dropped to $ 18,000,000.
For purposes of this problem, you may assume that, as of June 30, 2020, the present value of the "rental revenue" from the building is $ 5,00,000, and the present value of the selling price of the building is $11,000,000.
Given the current environment, WheeWork's auditors have indicated that WheeWork must perform an "lmpairment Test" for the building. Based on the information provided above, in accordance with US GAAP, whatis the amount reported for the building (i.e. Acquisition Cost less any Accumulated Depreciation and Write-Downs) on WheeWork's June 30, 2020 Balance Sheet?

A.$ 16,000,000

B.$ 17,000,000

C.$ 18,000,000

D.None of the above

Answer 1