Margo Wicks is a staff accountant with Food to Go Ltd. (FGL). FGL operates a variety...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Margo Wicks is a staff accountant with Food to Go Ltd. (FGL). FGL operates a variety of food trucks in a large Canadian city. The company started with just one food truck in 2010, and by 2013 it had 12 trucks providing sandwiches and other hand-held lunch items. In 2015 FGL expanded into ice cream trucks and acquired five trucks to circulate in local area parks. The expectation was that the ice cream trucks would be able to operate from early April to late November. However, a series of longer-than-normal winters recently has shortened the operating window from mid-May to the end of October. In addition, sales have been lower than expected. As part of the year-end financial reporting process, Margo has been asked by FGL's corporate controller to perform an impairment test on the ice cream trucks as at December 31, 2020. FGL reports under IFRS. Margo has obtained the following information: Appendix: Email regarding asset details Subject: Ice cream trucks Margo Wicks Corporate Controller TO: FROM: Hi Margo, Here's the information you requested for your analysis of the ice cream trucks. We purchased the trucks in January of 2015 for $70,000 each. We expected to get 10 years out of them, so we have been amortizing them on a straight-line basis with no residual value. Just recently, we were approached by a bricks and mortar restaurateur who is looking to add "mobile" to his restaurant lineup. He has offered us $150,000 for all five of the trucks, but we will be responsible for all of the inspection costs (estimated to be $5,000), the legal costs (estimated to be $2,500), and the transfer cost (estimated to be $500) for all trucks. We estimated that operating cash flows for each of the next five years for all trucks will be $55,000, at which point the trucks could be sold for $10,000 each. The current market rate that reflects the risk of this asset has been estimated to be 7%. I think that this covers everything - please let me know if there is anything else that you require. Sincerely, Corporate Controller S - 3 1 ! 1 2 Carrying amount 3 Cost A Item 4 Accumulated amortization 5 6 Fair market value less costs of disposal 7 Price 8 Less: Selling costs 9 10 Value in use 11 Present value of future cash flows B Amount 0 0 Select your answer 1 1 the asset's cost and accumulated amortization should each be reduced by the amount of the impairment loss. 2 the impairment loss is recognized in net income, and the carrying value of the asset is reduced. 3 the impairment loss is recognized in net income, and the accumulated amortization account is debited. the asset is classified as a discontinued operation, and income and expenses 4 related to the asset are disclosed separately on the face of the statement of operations. the asset is classified as a discontinued operation, but income and expenses 5 related to the asset do not need to be disclosed separately on the face of the statement of operations. Margo Wicks is a staff accountant with Food to Go Ltd. (FGL). FGL operates a variety of food trucks in a large Canadian city. The company started with just one food truck in 2010, and by 2013 it had 12 trucks providing sandwiches and other hand-held lunch items. In 2015 FGL expanded into ice cream trucks and acquired five trucks to circulate in local area parks. The expectation was that the ice cream trucks would be able to operate from early April to late November. However, a series of longer-than-normal winters recently has shortened the operating window from mid-May to the end of October. In addition, sales have been lower than expected. As part of the year-end financial reporting process, Margo has been asked by FGL's corporate controller to perform an impairment test on the ice cream trucks as at December 31, 2020. FGL reports under IFRS. Margo has obtained the following information: Appendix: Email regarding asset details Subject: Ice cream trucks Margo Wicks Corporate Controller TO: FROM: Hi Margo, Here's the information you requested for your analysis of the ice cream trucks. We purchased the trucks in January of 2015 for $70,000 each. We expected to get 10 years out of them, so we have been amortizing them on a straight-line basis with no residual value. Just recently, we were approached by a bricks and mortar restaurateur who is looking to add "mobile" to his restaurant lineup. He has offered us $150,000 for all five of the trucks, but we will be responsible for all of the inspection costs (estimated to be $5,000), the legal costs (estimated to be $2,500), and the transfer cost (estimated to be $500) for all trucks. We estimated that operating cash flows for each of the next five years for all trucks will be $55,000, at which point the trucks could be sold for $10,000 each. The current market rate that reflects the risk of this asset has been estimated to be 7%. I think that this covers everything - please let me know if there is anything else that you require. Sincerely, Corporate Controller S - 3 1 ! 1 2 Carrying amount 3 Cost A Item 4 Accumulated amortization 5 6 Fair market value less costs of disposal 7 Price 8 Less: Selling costs 9 10 Value in use 11 Present value of future cash flows B Amount 0 0 Select your answer 1 1 the asset's cost and accumulated amortization should each be reduced by the amount of the impairment loss. 2 the impairment loss is recognized in net income, and the carrying value of the asset is reduced. 3 the impairment loss is recognized in net income, and the accumulated amortization account is debited. the asset is classified as a discontinued operation, and income and expenses 4 related to the asset are disclosed separately on the face of the statement of operations. the asset is classified as a discontinued operation, but income and expenses 5 related to the asset do not need to be disclosed separately on the face of the statement of operations.
Expert Answer:
Answer rating: 100% (QA)
Based on the information provided Margo needs to perform an impairment test on the ice cream trucks as of December 31 2020 The impairment test compares the carrying amount of the asset the trucks with ... View the full answer
Related Book For
Ethics in Accounting A Decision Making Approach
ISBN: 978-1118928332
1st edition
Authors: Gordon Klein
Posted Date:
Students also viewed these accounting questions
-
Chang Company must perform an impairment test on its equipment. The equipment will produce the following cash flows: Year 1, $35,000; Year 2, $45,000; Year 3, $55,000. The discount rate is 10%. What...
-
Lee Company must perform an impairment test on its equipment. The equipment will pro- duce the following cash flows: Year 1, $35,000; Year 2, $45,000; Year 3, $55,000. Lee requires a minimum rate of...
-
A staff accountant with a large corporation wrote a book in which he proudly admits that, as tax deadlines approached, he "popped illegal amphetamines" and "frankly was stoned" when he was preparing...
-
Does the customer buying process end when a customer buys some merchandise? Explain your answer.
-
When the bank statement is received on July 3, it shows a balance, before reconciliation, of $ 5,200 as of June 30. After reconciliation, the adjusted balance is $ 3,100. If one deposit in transit...
-
The normal capacity of Albany Adhesives Inc. is 40,000 direct labor hours and 20,000 units per month. A finished unit requires 6 lb of materials at an estimated cost of $2 per pound. The estimated...
-
Recording and processing information about a transaction at the time it takes place is referred to as which of the following? a. batch processing b. online, real-time processing c. captured...
-
Temco Industries has developed a forecasting model that was used to forecast during a ten-month period. The forecasts and actual demand are shown as follows: Measure the accuracy of the forecast...
-
Assume that you work for a company in Colorado. Because of strong US dollar during this pandemic, your company plans to move the production facility to Canada. Explain any possibility that the...
-
Match the marketing data to the marketing mix component (product, price, place, or promotion) that it would be most helpful for analyzing. Marketing Data Competitor price Order fulfillment time...
-
A March sales forecast projects that 10,000 units of Product A and 12,000 units of Product B are going to be sold at prices of $11 and $13, respectively. The desired ending inventory of Product A is...
-
b) A simple crypto algorithm is used to protect data from unauthorised users. The plain text (the unprotected data) of 8-bit size is fed to the avr32 microcontroller that runs the algorithm. The...
-
A hunger for knowledge is China's real secret weapon Question 1 How can learning increase the competitive advantage of Chinese firms? Question 2 What issues do firms need to consider when adapting to...
-
After formally retiring at the age of 68, a financial analyst continues to use the term "retired financial analyst" when being introduced to new people. This individual provides an example of which...
-
Feather Friends, Incorporated, distributes a high-quality wooden birdhouse that sells for $120 per unit. Variable expenses are $60.00 per unit, and fixed expenses total $200,000 per year. Its...
-
Suppose the return of the market portfolio is 10%, risk of the market portfolio is 15%. The beta of stock GE is 0.6. The risk-free rate is 5%. What is the expected return of stock GE according to the...
-
On April 4, 2021, Classic Motifs Co. purchased 5,200 common shares of New Age Designs Inc. at a price of $37 each. On July 30, 2021, Classic Motifs Co. received a dividend of $1.25 per share on its...
-
What exactly is a prima facie duty? How does an ethic of prima facie duties differ from monistic and absolutist ethical theories?
-
During late-night tax preparation sessions at work, one of your male colleagues talks incessantly about how his gay-dar alerts him to which of your colleagues is gay. He also makes degrading comments...
-
A 19-year-old staff member at your accounting firm went into your computer system and copied the names, addresses, and identifying numbers of clients who pay by your firm by credit card. As a result...
-
When a company files for bankruptcy, many of its personnel quit and the company finds it difficult to attract new employees to fill these roles. If you were working for a company that filed for...
-
Repeat Example \(15-10\) but for a bulk gas that is \(40 \mathrm{~mol} \%\) air, \(15 \mathrm{~mol} \% \mathrm{NH}_{3}\), and 45 \(\mathrm{mol} \%\) water. Report \(\mathrm{x}_{\mathrm{NH} 3},...
-
Repeat Example \(15-8\) but for a pressure of \(1.1 \mathrm{~atm}\). Note that the diffusivities depend on pressure. Also answer Problem 15.A6. Example 15-8 Problem 15.A6 In Problem \(15 . \mathrm{H}...
-
A pipeline containing \(99.0 \mathrm{~mol} \%\) ammonia and \(1.0 \mathrm{~mol} \%\) hydrogen gas is vented to ambient air via a \(15 \mathrm{~m}\) long, \(3.5 \mathrm{~mm}\) diameter tube....
Study smarter with the SolutionInn App