Chrispian Cookies, Inc. is reviewing all available information regarding the future use of its baking equipment, which
Question:
Future Period Cash Flow Projection
Year 1 ………………………………. $ 1,800,000
Year 2 ………………………………. 1,600,000
Year 3 ……………………………… 980,000
Year 4 ……………………………… 890,000
Year 5 ……………………………… 730,000
Total $ 6,000,000
The asset is highly specialized and is not traded in an active market. As a result, the fair value of the asset must be estimated. Chrispian’s cost of capital is 6%.
Required
a. Conduct an impairment test for Chrispian’s baking equipment.
b. Prepare the journal entry to record any impairment loss indicated.
c. Compute the amount of the revised depreciation expense at the end of the next year. Assume that management now estimates that there will be no residual value at the end of the asset’s life. d. The estimated fair value at the end of the next year is $ 4,400,000. The sum of the undiscounted future cash flows exceeds the asset’s carrying value. Compare the carrying value of the asset to its fair value. Explain how to treat the difference between the asset’s carrying value and fair value. Cost Of Capital
Cost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of...
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Related Book For
Intermediate Accounting
ISBN: 978-0132162302
1st edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
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