Sunset Resorts, Inc., owns and manages resort properties. On January 15, 2007, one of its properties was found to be adjacent to a toxic chemical disposal site. As a result of the negative publicity, this property’s bookings dropped 40% during 2007. On December 31, 2007, the accounts of the company showed the following details regarding the impaired property:
Land .................$ 25,000,000
Buildings and improvements (net) .......80,000,000
Equipment (net) ..............15,000,000
Total ................$120,000,000
Management decides that closing the resort is the only option. As a result, it is estimated that the buildings and improvements will be written off completely. The land can be sold for other uses for $17 million, while the equipment can be disposed of for $4 million, net of disposal costs.
a. Journalize the entry to record the asset impairment on December 31, 2007.
b. Provide the note disclosure for the impairment.