LightWave Communications, Inc., spent $100 million expanding its fiber optic communication network between Chicago and Los Angeles

Question:

LightWave Communications, Inc., spent $100 million expanding its fiber optic communication network between Chicago and Los Angeles during 2005. The fiber optic network was assumed to have a 10-year life, with a $20 million salvage value, when it was put into service on January 1, 2006. The network is depreciated using the straight-line method. At the end of 2007, the expected traffic volume on the fiber optic network was only 60% of what was originally expected. The reduced traffic volume caused the fair market value of the asset to be estimated at $45 million on December 31, 2007. The loss is not expected to be recoverable.

a. Determine the book value of the network on December 31, 2007, prior to the impairment adjustment.

b. Provide the journal entry to record the fixed asset impairment on December 31, 2007.

c. Provide the balance sheet disclosure for fixed assets on December 31, 2007.

Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...