Question 1

Granite Enterprises acquired a patent from Southern Research Corporation on 1/1/09 for $4 million. The patent will be used for five years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at the end of five years. Compute Granite's patent amortization for 2009, assuming the straight-line method is used.

Accepted Answer

A) $380,000 
B) $400,000 
C) $760,000 
D) $800,000 The $200,000 purchase commitment is treated as the residual value of the patent.Amortization is as follows:
($4,000,000 200,000) 5 years = $760,000

Question 2

The amount of impairment loss is the excess of book value over:

Accepted Answer

A) Carrying value. 
B) Undiscounted future cash flows. 
C) Fair value. 
D) Future revenues.

Question 3

Wilson Inc. owns equipment for which it paid $70 million. At the end of 2009, it had accumulated depreciation on the equipment of $12 million. Due to adverse economic conditions, Wilson's management determined that it should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $50 million. Under these circumstances, Wilson:

Accepted Answer

A) Would record no impairment loss on the equipment. 
B) Would record an $8 million impairment loss on the equipment. 
C) Would record a $20 million impairment loss on the equipment. 
D) None of these is correct.The undiscounted cash flows ($60 million) exceed the book value ($58 million), so no impairment is required.

Question 4

At the end of its 2009 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available: The manufacturing facility is:

Accepted Answer

A) Impaired because its book value exceeds expected future cash flows. 
B) Not impaired because its book value exceeds undiscounted future cash flows. 
C) Not impaired because it continues to produce revenue. 
D) Impaired because its book value exceeds fair value.

Question 5

Using the double-declining balance method, depreciation for 2009 and the book value at December 31, 2009 would be:

Accepted Answer

A) $26,400 and $45,600. 
B) $28,800 and $43,200. 
C) $28,800 and $37,200. 
D) $26,400 and $36,600.Depreciation, 2009 = $72,000 40% = $28,800 Book value, 12/31/09 = $72,000 28,800 = $43,200

Exam 11: Operational Assets: Utilization and Impairment

The amount of impairment loss is the excess of book value over:

At the end of its 2009 fiscal year, a triggering event caused Janero Corporation to perform an impairment test for one of its manufacturing facilities. The following information is available: The manufacturing facility is:

Using the double-declining balance method, depreciation for 2009 and the book value at December 31, 2009 would be: