Question: Assume that you are auditing the financial statements of Agee

Assume that you are auditing the financial statements of Agee Corporation. During the course of the audit, you discover the following circumstances.
1. Management of Agee has decided to discontinue the production of consumer electronics, which represents a moderately large line of business for the company.
2. In auditing facility rent expense, you note that the amount is significantly less than in the prior year. When you discuss the matter with management, you are informed that management entered into a new 10-year building lease agreement about nine months ago, which provided for no lease payments for the first year of the lease.
3. In vouching additions to plant assets, you find that management has capitalized the lease-hold improvements made on the building acquired in (2), which are being depreciated over an estimated useful life of 12 years.
4. Management has provided you with the following information about a test of impairment of the company’s clothing and apparel reporting unit and a large piece of equipment used in the consumer products division of the company. The Clothing and Apparel reporting unit has $1,200,000 in goodwill associated with it.
Clothing and Apparel Reporting Unit
Carrying value of the unit ........... $12,600,000
Discounted value of estimated future cash flows .... 12,200,000
Market value of the unit ............. 11,500,000
Carrying value of the equipment .......... $1,200,000
Undiscounted estimated future cash flows ..... 1,250,000
Discounted value of estimated future cash flows ..... 1,000,000
Market value of the equipment ........... 975,000

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