Chapter 11, Problem 11.26E

Impairment; property, plant, and equipment

• LO11–8

General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant:

Cost	$ 32,500,000
Accumulated depreciation	14,200,000
General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value	15,000,000

The fair value of the Arizona plant is estimated to be $11,000,000.

Required:

1. Determine the amount of impairment loss, if any.

2. If a loss is indicated, where would it appear in General Optic’s multiple-step income statement?

3. If a loss is indicated, prepare the entry to record the loss.

4. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $12,000,000 instead of $15,000,000.

5. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $19,000,000 instead of $15,000,000