Question

Question 1 0 10.71 pts USE THE FOLLOWING INFORMATION TO ANSWER THE NEXT (8) QUESTIONS: On August 1, 20x1, Sparky Mercantile adopted a plan to discontinue its children's clothing division, which qualifies as a component of the business according to GAAP. The disposal of the division was expected to be concluded by June 30, 20x2. On December 31, 20x1, Sparky's fiscal year-end, the following information relative to the discontinued operation was accumulated: $ 549,000 Operating Income (pre-tax) Jan 1, 20x1 - Dec 31, 20x1 Net Book Value of the Component at Dec 31, 20x1 Fair Value of the Component 3,225,000 3,100,000 Estimated Disposal Costs 120,000 Income Tax Rate 30% Because the sale was not complete by December 31, 2018, Sparky had to test the component for impairment. Determine the Impairment Loss (net of tax), that Sparky would report in their 20x1 footnotes (if any): $. *If an impairment loss is indicated just record your answer as a positive number. Do not use commas or dollar signs. 245000

Answer 1

Impariment loss Net book value of the component $ 32,25,000.00 Impairment loss = Book value - Recoverable amount Recoverable amount = Higher of Fair value or Value in sue Fair value of the component = $ 31,00,000.00 Value in use = Future value of cash flows Value in use Operating income Less: taxes Net operating income Less: Disposal cost Recoverable amount = $ 5,49,000.00 $ -1,64,700.00 $ 3,84,300.00 $ -1,20,000.00 = $ 2,64,300.00 Recoverable amount Higher of $31,00,000 or $2,64,300 $31,00,000 = Impairment loss = $32,25,000 - $31,00,000 = $ 1,25,000.00