Question

Alou Corporation reported the following information at year-end: Building Patent Copyright Machine Book Value $522,000 $ 51,000 $ 56,000 $116,000 Estimated Cash Flows $396,000 $ 56,000 $ 54,000 $136,000 Fair Value $375,000 $ 50,000 $ 52,000 $ 98,000 Based on the above information, what is the total amount of impairment loss that Alou should record at year-end? Multiple Choice $155,000. $159,000. $151,000. $158,000.

Answer 1

OPTION: $151000

EXPLANATION:

Impairment loss is recognized when the estimated cash flows is less than book value.

and

impairment loss = book value - fair value.

there is impairment loss only in case of building and copyright as the estimated cash flows is less than book value.

therefore,

For building,

impairment loss = $522000 - $375000 = $147000

for copyright,

impairment loss = $56000 - $52000 = $4000

therefore, total impairment loss = $147000 + $4000 = $151000