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Learning Exercise 7: Impairment of PP&E; Intangible Assets; & Goodwill (25 points) (Solutions)
Problem 1
Bateman Company purchased a convenience store building on January 1, 2007, for a 6,500,000. The building has been depreciated using the straight-line method with a 20-year useful life and 5% residual value. As of January 1, 2013, Bateman has converted the building into an Internet Learning Center where classes on Internet usage will be conducted six days a week. Because of the change in the use of the building, Bateman is evaluating the building for possible impairment. Bateman estimates that the building has a remaining useful life of 10 years, that its residual value will be zero, that net cash inflow from the building will be $400,000 per year, and that the current fair value of the building is $2,500,000. Required. a. How much impairment loss should be recorded? b. Record depreciation expense for 2013.
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Problem 2
The Pentella Company acquired Susan Company on January 1. As part of the acquisition, $10,000 in goodwill was recognized; this goodwill was assigned to Pentella Production reporting unit. During the year, the Production reporting unit reported revenues of $13,000. Publicly traded companies with operations similar to those of the Production unit had price-to-revenue ratios averaging 1.60. The fair values and book values of the assets and liabilities of the Production reporting unit are as follows:
Required. a. What is the amount of the impairment loss, if any? b. Record the journal entry if there is any impairment loss.
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Problem 3
Bellows Bottling purchased for $800,000 a trademark for a very successful soft drink it markets under the name BLAST! The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the BLAST! product, thus suggesting the need for impairment test. Data gathered by Bellows suggests that the useful life of the trademark
Problem 1
Bateman Company purchased a convenience store building on January 1, 2007, for a 6,500,000. The building has been depreciated using the straight-line method with a 20-year useful life and 5% residual value. As of January 1, 2013, Bateman has converted the building into an Internet Learning Center where classes on Internet usage will be conducted six days a week. Because of the change in the use of the building, Bateman is evaluating the building for possible impairment. Bateman estimates that the building has a remaining useful life of 10 years, that its residual value will be zero, that net cash inflow from the building will be $400,000 per year, and that the current fair value of the building is $2,500,000. Required. a. How much impairment loss should be recorded? b. Record depreciation expense for 2013.
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2
Problem 2
The Pentella Company acquired Susan Company on January 1. As part of the acquisition, $10,000 in goodwill was recognized; this goodwill was assigned to Pentella Production reporting unit. During the year, the Production reporting unit reported revenues of $13,000. Publicly traded companies with operations similar to those of the Production unit had price-to-revenue ratios averaging 1.60. The fair values and book values of the assets and liabilities of the Production reporting unit are as follows:
Required. a. What is the amount of the impairment loss, if any? b. Record the journal entry if there is any impairment loss.
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4
Problem 3
Bellows Bottling purchased for $800,000 a trademark for a very successful soft drink it markets under the name BLAST! The trademark was determined to have an indefinite life. A competitor recently introduced a product that is in direct competition with the BLAST! product, thus suggesting the need for impairment test. Data gathered by Bellows suggests that the useful life of the trademark