Super Soups, Inc. is a Chicago based company that produces soup. Super Soups is publicly traded and has a February 28, 2022 fiscal year end. The demand for Super Soup’s products has increased significantly during COVID-19 (primarily to the number of people working from home). Super Soups did an analysis of the capabilities of the old production equipment and all but one machine were determined to be in superior condition. Machine #111 was assessed to be operating at only 50% of the necessary production level and would be able to generate $120,000 from production and a sale of the machine in the next fiscal year. As a result of this analysis and the increased demand Super Soups purchased new equipment to replace Machine #111. Super Soups will no longer use Machine #111 and is planning on offering it for sale. The original cost of Machine #111 was $400,000 and $255,000 of depreciation had been recognized as of February 1, 2022 which results in a net carrying value of $145,000. Additionally, the fair value of Machine #111 is $110,000. In planning for the year end financial statements the CFO has asked you to research the following accounting issue(s): Accounting Issues: Should an impairment loss be recognized on Machine #111? Yes No What is the amount of an impairment loss (if any)? $0 c. $25,000 $10,000 d. $35,000
Super Soups, Inc. is a Chicago based company that produces soup. Super Soups is publicly traded and has a February 28, 2022 fiscal year end. The demand for Super Soup’s products has increased significantly during COVID-19 (primarily to the number of people working from home). Super Soups did an analysis of the capabilities of the old production equipment and all but one machine were determined to be in superior condition. Machine #111 was assessed to be operating at only 50% of the necessary production level and would be able to generate $120,000 from production and a sale of the machine in the next fiscal year.
As a result of this analysis and the increased demand Super Soups purchased new equipment to replace Machine #111. Super Soups will no longer use Machine #111 and is planning on offering it for sale. The original cost of Machine #111 was $400,000 and $255,000 of
In planning for the year end financial statements the CFO has asked you to research the following accounting issue(s):
Accounting Issues:
- Should an impairment loss be recognized on Machine #111?
- Yes
- No
- What is the amount of an impairment loss (if any)?
- $0 c. $25,000
- $10,000 d. $35,000
- Recoverable Amount is higher of the following :
- Fair value less cost of disposal = $110,000
- Value in Use = Present value of future cash flow expected to be received from asset = $120,000
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