The footnotes to the 2012 financial statements of McDonalds Corporation contain the following statement: Long-lived assets are

Question:

The footnotes to the 2012 of McDonald’s contain the following statement: Long-lived assets are reviewed for impairment annually . . . and . . . if an individual restaurant is determined to be impaired the loss is measured by the excess of the carrying amount of the restaurant over its fair value as determined by an estimate of discounted future cash flows.

REQUIRED:
a. Discuss the circumstances that could indicate that a McDonald’s restaurant may be impaired.
b. Describe how McDonald’s records an impairment charge.
c. How could management use the concept of an impairment charge to manage earnings?

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