REQUIRED: a. Assume that Terry's carrying value for the field is $300 million. Determine whether Terry must book impairment and, if so, record the necessary journal entry. Round the present value factors to four decimal places. b. Assume that Terry's carrying value for the field is $400 million. Determine whether Terry must book impairment and, if so, record the necessary journa entry. Round the present value factors to four decimal places.
REQUIRED: a. Assume that Terry's carrying value for the field is $300 million. Determine whether Terry must book impairment and, if so, record the necessary journal entry. Round the present value factors to four decimal places. b. Assume that Terry's carrying value for the field is $400 million. Determine whether Terry must book impairment and, if so, record the necessary journa entry. Round the present value factors to four decimal places.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Tery Company, a successful efforts company, has 100% of the working interest
ield in Texas. The field constitutes a cost center and is also an asset group for
purposes of testing for impairment. In 2019, the price of oil dropped significantly:
therefore, Terry must test for impairment. The table below reflects Terry's latest
expected cash flows and risk-free rates for the remainder of the life of the field.
Total Net Cash Flow
Estimate (Market)
(million $)
Probability
Assessment
Credit-Adjusted
Risk-Free Rate
Year
2020
$100.0
90.9
85.3
30%
60%
10%
6.2%
2021
$91.2
50%
88.3
75.4
20%
30%
6.9%
$87.5
91.8
65.5
2022
70%
20%
10%
7.1%
$ 62.4
50.2
45.8
2023
55%
20%
25%
6.7%
$ 45.9
55.5
36.0
2024
80%
10%
10%
5.5%
$ 31.6
21.0
15.4
2025
60%
20%
20%
6.1%
REQUIRED:
a. Assume that Terry's carrying value for the field is $300 million. Determine
whether Terry must book impairment and, if so, record the necessary journal
entry. Round the present value factors to four decimal places.
b. Assume that Terry's carrying value for the field is $400 million. Determine
whether Terry must book impairment and, if so, record the necessary journal
entry. Round the present value factors to four decimal places.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2cd05eb9-d4fb-47d4-a045-424c40c5ae8e%2F3bae8b7b-94bd-422d-8e89-df285572c84f%2Fqqgmgnr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Tery Company, a successful efforts company, has 100% of the working interest
ield in Texas. The field constitutes a cost center and is also an asset group for
purposes of testing for impairment. In 2019, the price of oil dropped significantly:
therefore, Terry must test for impairment. The table below reflects Terry's latest
expected cash flows and risk-free rates for the remainder of the life of the field.
Total Net Cash Flow
Estimate (Market)
(million $)
Probability
Assessment
Credit-Adjusted
Risk-Free Rate
Year
2020
$100.0
90.9
85.3
30%
60%
10%
6.2%
2021
$91.2
50%
88.3
75.4
20%
30%
6.9%
$87.5
91.8
65.5
2022
70%
20%
10%
7.1%
$ 62.4
50.2
45.8
2023
55%
20%
25%
6.7%
$ 45.9
55.5
36.0
2024
80%
10%
10%
5.5%
$ 31.6
21.0
15.4
2025
60%
20%
20%
6.1%
REQUIRED:
a. Assume that Terry's carrying value for the field is $300 million. Determine
whether Terry must book impairment and, if so, record the necessary journal
entry. Round the present value factors to four decimal places.
b. Assume that Terry's carrying value for the field is $400 million. Determine
whether Terry must book impairment and, if so, record the necessary journal
entry. Round the present value factors to four decimal places.
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