Bluebird Airlines, an Ohio based low-cost airline flies charter flights to vacation destinations in Florida, Nevada, and Cancun, Mexico. During 2020, due to the corona virus pandemic, the airline grounded most of its aircrafts and canceled almost all its booked flights for the summer. Bluebird decided that an impairment test was appropriate. The Chief Accountant has prepared the following information for the assets of the airline ($ in millions) Cost of Aircraft Fleet$800Estimated undiscounted sum of future cash flows180Estimated fair value of aircraft fleet 300Accumulated depreciation200 Required:Determine the amount of the impairment loss Bluebird Airlines should recognize, if any.Prepare the journal entry to record the loss, if any.Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $650 million instead of $180.

Impairment of an assets is done when the carrying amount of assets is more than recoverable amount. Recoverable amount means higher of fair value of assets or undiscounted cash flow of assets. Cost of aircraft fleet = $ 800 Less :- Accumulated Depreciation = $ 200 Book value of aircraft fleet (800-200) = $ 600 Recoverable amount = higher of 180 or 300 = $ 300 Requirement 1 :- Impairment loss (600-300) = $ 300 Requirement 2 :- Date Particulars L.F. Amount Dr. $ Amount Cr. $ - Impairment Loss A/c ________Dr. 300 - To Aircraft Fleet A/c - 300 (Being assets impaired) Requirement 3 :- Cost of aircraft fleet = $ 800 Less :- Accumulated Depreciation = $ 200 Book value of aircraft fleet (800-200) = $ 600 Recoverable amount = higher of 650 or 300 = $ 650 Since recoverable amount (650) is higher than book value (600) , hence , there is no need of any impairment loss.

Answered: Bluebird Airlines, an Ohio based…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Bluebird Airlines, an Ohio based low-cost airline flies charter flights to vacation destinations in Florida, Nevada, and Cancun, Mexico. During 2020, due to the corona virus pandemic, the airline grounded most of its aircrafts and canceled almost all its booked flights for the summer. Bluebird decided that an impairment test was appropriate. The Chief Accountant has prepared the following information for the assets of the airline ($ in millions)

Cost of Aircraft Fleet	$800
Estimated undiscounted sum of future cash flows	180
Estimated fair value of aircraft fleet	300
Accumulated depreciation	200

Required:

Determine the amount of the impairment loss Bluebird Airlines should recognize, if any.
Prepare the journal entry to record the loss, if any.
Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $650 million instead of $180.

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