Ferris Bueller, Inc., owns a building in Des Moines, Iowa, that was built at a cost of

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Ferris Bueller, Inc., owns a building in Des Moines, Iowa, that was built at a cost of $5,000,000 in 2000. The building was used as a manufacturing facility from 2003 to 2012. However, economic conditions have made it necessary to consolidate Ferris Bueller's operations, and the building has been leased as of January 1, 2013, as a warehouse for 10 years at an annual rental of $240,000. Taxes, insurance, and normal maintenance costs are to be paid by the lessee. At the end of the 10-year period, Ferris Bueller may offer the lessee a renewal of the lease or again use the building in its operations. The building is being depreciated on a straight-line basis over a 40-year life.
In early 2013, Julie Ramos, a new staff accountant for Ferris Bueller, was assigned to review the building accounts and raised a question to Alison Crowther, her supervisor, concerning the carrying value of the Des Moines building. As of January 1, 2013, Julie feels the Des Moines building was impaired and should be written down in value. Alison is unsure about the current position of the FASB on this issue and invites Julie to prepare a memorandum recommending a specific write-down amount, with supporting justification. Prepare the memorandum, assuming current interest rates are 10%.
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Intermediate Accounting

ISBN: 978-0538479738

18th edition

Authors: Earl K. Stice, James D. Stice

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