Liberty National Airlines is a small commercial airline operating in the United States. Because of poor economic conditions in the airline industry in 2019, Liberty National has eliminated some routes and reduced the frequency of flights on all other routes. As a result, the airline has indefinitely stored 8 of its 20 aircraft. The company continues to lose money and sees no time in the foreseeable future that the parked aircraft will be operated again. The company’s public accountant has told the airline officials that it must assess whether the parked planes (and perhaps some of those flying routes) should be assessed for impairment. The parked planes have a combined book value of $96 million.
Company officials have researched the problem and found that there is an abundance of identical or similar planes that could be purchased for approximately $9 million each. Several of these similar planes have been recently sold and the $9 million value for each has been accepted by company officials as being a good estimate of the going sales price and of their fair value. It has been impossible for company officials to estimate future cash flows, or if there will be any future cash flows from those planes.

INSTRUCTIONS
Answer the following questions:
1. Should Liberty National Airlines record impairment of the parked planes? Why or why not?
2. If impairment should be recorded, what is the amount of impairment?
3. What accounting entry would be necessary based on the above facts?
4. If impairment is recorded in 2019 and subsequently the value of the planes increases before they are sold, with the result that market value exceeds the book value, should the value of the planes be increased at that time?

Analyze: What steps can you suggest the company take in considering whether the planes that are still flying also may be impaired?