On January 1, 2008, Senville Company purchased equipment for $1,760,000. It is depreciating the equipment over...

On January 1, 2008, Senville Company purchased equipment for $1,760,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2013, because of technological changes in the industry and reduced selling prices for its products, Senville believes that its equipment may be impaired and will have a remaining useful life of 8 years. Senville estimates that the equipment will produce cash inflows of $400,000 and will incur cash outflows of $239,800 each year for the next 8 years. It is not able to determine the fair value of the equipment based on a current selling price. Senville's discount rate is 12%.

Required: 1. Prepare schedules to determine whether, at the end of 2013, the equipment is impaired and, if so, the impairment loss to be recognized. If required, round your intermediate dollar value calculations and final answers to the nearest dollar.

Senville Company Impairment test December 31, 2013

Calculations: $ $ $

Measurement of the impairment loss:

PV of the expected net cash flows (fair value) $ $

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 continue for 6 years? Enter as a positive number. $

4. Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $843,720 and estimates that it would cost $16,440 to sell the equipment. How much would the company recognize as the impairment loss? Enter as a positive number. $

Expert Solution

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