Problem: 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 - $43,500,000
Accumulated depreciation - 15,300,000
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 - 17,200,000
The fair value of the Arizona plant is estimated to be $16,500,000.
Assignment Requirement:
1. Determine the amount of impairment loss.
2. If a loss is indicated, prepare the entry to record the loss.
3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $16,500,000 instead of $17,200,000 and (4) $29,150,000 instead of $17,200,000.
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