Deck 13: Long-Term Operating Assets: Departures From Historical Cost

Question 1

Before testing property,plant,and equipment (PPE)and finite-life intangible (FLI)assets,________.

A)the firm will assess PPE as individual assets and FLI assets in asset groups
B)the firm will assess PPE in asset groups and FLI assets as individual assets
C)the firm will assess both PPE and FLI assets in asset groups
D)the firm will assess both PPE and FLI assets as individual assets or in asset groups

Answer 1

D

Question 2

One example of an impairment indicator is a significant increase in the market price of an asset or asset group.

Answer 2

False

Question 3

The method of accounting for impairment of long-term assets depends upon the type of loss that occurs.

Answer 3

False

Question 4

All of the following are key steps related to accounting for impairments of long-term operating assets except ________.

A)asset grouping
B)measurement subsequent to impairment
C)derecognition of impairment
D)testing for impairment

Question 5

List the four key steps related to accounting for impairments of long-term operating assets.

Question 6

When testing assets for impairment,a firm must assess them as individual assets.

Question 7

One example of an impairment indicator is a significant adverse change in legal factors that affect the value of an asset or asset group.

Question 8

The first step of the impairment test is assessing asset recoverability.

Question 9

After recognizing the impairment,the firm carries the asset at its fair value less previously accumulated depreciation.

Question 10

Firms conduct an impairment test whenever impairment indicators indicate that an asset may be impaired.

Question 11

When an impairment occurs,the firm recognizes a loss on the income statement.

Question 12

When assessing assets for impairment in asset groups,the firm groups assets at the lowest level of identifiable and independent cash flows.

Question 13

Firms assess assets for impairment ________.

A)as individual assets only
B)in asset groups only
C)as either individual assets or in asset groups
D)as both individual assets and in asset groups

Question 14

When an asset is impaired,the firm will determine a new carrying amount based upon its expectation of future economic benefits.

Question 15

When an asset is impaired,the firm reduces the asset's carrying value on the balance sheet and recognizes the decline in value ________.

A)as a loss from continuing operations on the income statement
B)as an extraordinary loss on the income statement
C)as an unrealized loss in other comprehensive income
D)as an realized loss in other comprehensive income

Question 16

Impairment loss equals carrying value less fair value.

Question 17

U.S.GAAP allows for subsequent reversals of write-downs for long-term operating assets held for use in operations.

Question 18

An impairment occurs when an asset's carrying value falls below its total future cash-generating ability.

Question 19

Impairment of a long-term operating asset occurs when ________.

A)the carrying value of the asset is systematically reduced over its useful economic life
B)there is a failure to meet the legal obligations or conditions of a loan by which that asset was acquired
C)an asset or part of an asset is removed from the asset portfolio
D)an asset's total future cash-generating ability falls below its carrying value

Question 20

When assessing asset impairment,fair value is also referred to as replacement cost.

Question 21

In 2011,ZeeTee Inc.acquired production machinery at a cost of $630,000,which now has a accumulated depreciation of $380,000.The undiscounted cash flows from use of the machinery is $220,000.and it's fair value is $195,000.What amount should Condor recognize as a loss on impairment?

A)$185,000
B)$55,000
C)$25,000
D)-0-

Question 22

In 2011,Diller Company acquired production machinery at a cost of $860,000,which now has a book value of $380,000.The undiscounted cash flows from use of the machinery is $335,000.and it's fair value is $290,000.
a.Determine if an impairment loss has occurred.Explain.
b.If an impairment loss has occurred,provide the journal entry to record the impairment loss.

Question 23

Which of the following is not an impairment indicator?

A)a significant decrease in the purchase price of an asset or asset group scheduled to be acquired in the current period
B)a significant adverse change in legal factors that could affect the value of the asset or asset group
C)a current-period cash flow loss combined with a forecast of continuing losses associated with the use of an asset or asset group
D)a significant decrease in the market price of an asset or asset group

Question 24

In 2011,Yondoor Inc.Company acquired production machinery which now has a book value of $740,000.The undiscounted cash flows from use of the machinery is $365,000.and it's fair value is $305,000.Yondoor has determined that an impairment loss has occurred.What is the carrying value of the machinery after the journal entry to record the impairment loss has been recorded?

A)$445,000
B)$375,000
C)$365,000
D)$305,000

Question 25

Which of the following is not an impairment indicator?

A)a significant decrease in the purchase price of an asset or asset group scheduled to be acquired in the current period
B)a significant adverse change in legal factors that could affect the value of the asset or asset group
C)a current-period cash flow loss combined with a forecast of continuing losses associated with the use of an asset or asset group
D)a significant decrease in the market price of an asset or asset group

Question 26

If impairment indicators suggest that an asset might be impaired,the firm then performs a ________.

A)one-step impairment test
B)two-step impairment test
C)three-step impairment test
D)four-step impairment test

Question 27

List four impairment indicators.

Question 28

Briefly describe the process for determining impairment losses on property,plant,and equipment and finite-life intangible assets.

Question 29

Impairment testing is conducted annually for both limited-life and indefinite-life intangible assets.

Question 30

Doowow Chemical Company determines that an extruder machine used in its operations has suffered an impairment in value because of technological changes.An entry to record the impairment should include ________.

A)a debit to the machinery accumulated depreciation account
B)a debit to the machinery account
C)a credit to machinery depreciation expense account
D)a credit to the loss on impairment account

Question 31

Ponzi Printing Company determines that a printing machine used in its operations has suffered an impairment in value because of technological changes.An entry to record the impairment should include a credit to ________.

A)the machinery accumulated depreciation account
B)the loss on impairment account
C)the machinery account
D)the machinery depreciation expense account

Question 32

In 2009,Cilla Company acquired production machinery at a cost of $410,000,which now has a accumulated depreciation of $240,000.The undiscounted cash flows from use of the machinery is $190,000 and it's fair value is $145,000.What amount should Cilla recognize as a loss on impairment?

A)$20,000
B)$35,000
C)$70,000
D)-0-

Question 33

In 2017,Yumster Company determined that a production machine used in its operations was impaired and an impairment loss of $110,000 was recognized.In 2017,the fair value of the asset increased by $170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce.How would the gain due to increase in fair value be recognized in 2017?

A)U)S.GAAP permits the recognition of this impairment reversal as income from continuing operations.
B)U)S.GAAP permits the recognition of this impairment reversal as other comprehensive income.
C)U)S.GAAP allows the recognition of this impairment reversal as either income from continuing operations or as other comprehensive income,depending upon management's intent.
D)U)S.GAAP does not permit recognition of gains on reversal of previous impairment loss write-downs.

Question 34

Explain how gains or losses on impaired assets should be reported in income.

Question 35

Which of the following statements is true about assessing recoverability of an asset?

A)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
B)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is impaired.
C)If the sum of the undiscounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.
D)If the sum of the discounted cash flows exceeds the carrying value of the asset,then the asset is not impaired.

Question 36

All intangibles are subject to periodic consideration of impairment with corresponding potential write-downs.

Question 37

Which of the following statements regarding impairment testing of long-lived assets is false?

A)If the carrying value of the asset is greater than its recoverable value,an impairment loss must be recognized.
B)The asset recoverability test compares the carrying value of the asset with its fair value.
C)The carrying value of the asset after adjustment for impairment loss is its fair value.
D)If impairment indicators are present,the company must conduct an impairment test.

Question 38

U.S.GAAP requires that firms combine indefinite-life intangibles into an asset grouping if they are operated as a single asset.

Question 39

Which of the following is an impairment indicator?

A)a significant decrease in the purchase price of an asset or asset group scheduled to be acquired in the current period
B)a significant adverse change in legal factors that could affect the value of the asset or asset group
C)a significant increase in the purchase price of an asset or asset group scheduled to be acquired in the current period
D)a significant increase in the market price of an asset or asset group

Question 40

In 2010,Mennora Corporation acquired production machinery at a cost of $410,000,which now has a book value of $190,000.The undiscounted cash flows from use of the machinery is $175,000.and it's fair value is $135,000.What amount should Menorrah recognize as a loss on impairment?

A)$15,000
B)$40,000
C)$55,000
D)-0-

Question 41

U.S.GAAP requires that firms must perform an annual impairment test of indefinite-life assets.

Question 42

An impairment loss for goodwill is calculated as the difference between ________.

A)the implied fair value of goodwill and its book value
B)the fair value of the reporting unit (including goodwill)and the fair value of its net assets (without goodwill)
C)the book value of the reporting unit (including goodwill)and the book value of its net assets (without goodwill)
D)the fair value of the reporting unit (including goodwill)and the book value of the reporting unit (without goodwill)

Question 43

The implied fair value of goodwill is calculated as the difference between ________.

A)the implied fair value of goodwill and its book value
B)the fair value of the reporting unit (including goodwill)and the fair value of its net assets (without goodwill)
C)the book value of the reporting unit (including goodwill)and the book value of its net assets (without goodwill)
D)the fair value of the reporting unit (including goodwill)and the book value of the reporting unit (without goodwill)

Question 44

U.S.GAAP allows companies to make a qualitative evaluation annually to determine whether it is more likely than not that a reporting unit's goodwill is impaired.

Question 45

Devo Co.has an indefinite-life intangible asset with a carrying value of $782,000.The undiscounted cash flows expected to be realized from that asset total $827,000; the discounted cash flows are $574,000; and the fair value of the asset has been determined to be $646,000.What is the amount of the impairment loss to be recorded,if any?

A)$208,000
B)$136,000
C)$35,000
D)-0-

Question 46

U.S.GAAP does not permit subsequent reversals of goodwill impairment losses.

Question 47

U.S.GAAP does not permit subsequent reversals of impairment losses for finite-life intangible assets.

Question 48

Determining the amount of goodwill impairment is a one-step impairment test.

Question 49

Firms associate goodwill with the group of net assets at the level of the operating segment or one level below the operating segment.

Question 50

After an impairment loss is recorded for goodwill,what is the basis for the impaired asset?

A)the recoverable amount
B)the fair value
C)undiscounted expected cash flows
D)discounted expected cash flows

Question 51

When determining the amount of goodwill impairment,the fair value of the reporting unit is it's exit price.

Question 52

For which of the following does U.S.GAAP permit recognition of recovery of impairment?

A)patents held for sale
B)patents held for use
C)goodwill
D)none of these

Question 53

A loss on impairment of an indefinite-life intangible asset is the difference between the asset's ________.

A)recoverable amount and the expected future net cash flows
B)book value and its fair value
C)carrying amount and its recoverable amount
D)carrying amount and the expected future net cash flows

Question 54

The journal entry to record an impairment loss for an indefinite-life intangible asset includes which of the following?

A)debit the intangible asset
B)credit the intangible asset
C)debit accumulated amortization for the asset
D)credit accumulated amortization for the asset

Question 55

After assessing qualitative factors to determine whether it is necessary to perform the quantitative impairment test,the firm will proceed with determining fair value if impairment is deemed reasonably possible.

Question 56

How do the standards specifying when to test for impairment for indefinite-life intangible assets differ from those standards for finite-life intangible assets?

Question 57

Companies should evaluate indefinite life intangible assets at least annually for ________.

A)amortization
B)derecognition
C)recoverability
D)impairment

Question 58

What is the nature of the recoverability test for indefinite-life intangible assets?

A)Is the carrying value of the asset greater than future undiscounted cash flows generated by the asset?
B)Is the carrying value of the asset greater than future discounted cash flows generated by the asset?
C)Is the carrying value of the asset greater than the fair value of the asset?
D)There is no recoverability test for indefinite-life intangible assets.

Question 59

Impairment testing for goodwill is the same as impairment tests for other indefinite-life assets.

Question 60

Devo Co.has an indefinite-life intangible asset with a carrying value of $782,000.The undiscounted cash flows expected to be realized from that asset total $827,000; the discounted cash flows are $574,000; and the fair value of the asset has been determined to be $646,000.What is the new carrying value of the asset after impairment loss has been recorded?

A)$827,000
B)$646,000
C)$574,000
D)$136,000

Question 61

Value in use of a long-life asset is ________.

A)the greater of its recoverable value or its fair value less cost to sell
B)the lesser of its recoverable value or its fair value less cost to sell
C)the undiscounted cash flows from use of the asset
D)the discounted cash flows from use of the asset

Question 62

Regular Corp.has four divisions.One of them,Zolo Products,was acquired on January 1,2016,for $400,000,000,and recorded goodwill of $50,750,000 as a result of that purchase.At December 31,2016,Zolo Products had a recoverable amount of $375,000,000.The carrying value of the company's net assets at December 31,2016 was $355,000,000 (including goodwill).What amount of loss on impairment of goodwill should Regular record in 2016?

A)$45,000,000
B)$25,000,000
C)$20,000,000
D)-0-

Question 63

Under the IFRS one-step impairment test,an assets recoverable value is its fair value or its value in use,whichever is lower.

Question 64

Under IFRS,the smallest identifiable group of assets that provides cash inflows is called a ________.

A)reporting unit
B)operating unit
C)cash-providing unit
D)cash-generating unit

Question 65

U.S.GAAP requires an impairment test for goodwill if ________.

A)the fair value of the reporting unit (including goodwill)is greater than the fair value of its net assets (without goodwill)
B)the fair value of the reporting unit (including goodwill)is less than the fair value of its net assets (without goodwill)
C)the fair value of the reporting unit (including goodwill)is less than the book value of the reporting unit (without goodwill)
D)the fair value of the reporting unit (including goodwill)is less than the book value of the reporting unit (including goodwill)

Question 66

When recording an impairment loss,the firm eliminates the balance in the accumulated depreciation or accumulated amortization account,and then reduces the asset account.

Question 67

For indefinite-life intangibles,impairment must be tested at least annually,even in the absence of indicators.

Question 68

IFRS allows firms to reverse impairment loss write-downs on property,plant,and equipment but not on finite-life intangible assets.

Question 69

Under IFRS,impairment tests are more frequent for PPE and finite-life intangible assets than for indefinite-life intangible assets.

Question 70

To determine the implied fair value of goodwill,the company will compare the fair value of the reporting unit (including goodwill)with ________.

A)the fair value of the net assets of the reporting unit (without goodwill)
B)the fair value of the net assets of the reporting unit (including goodwill)
C)the fair value of the reporting unit (without goodwill)
D)the book value of the reporting unit (without goodwill)

Question 71

IFRS impairment testing for finite-life intangible assets is similar to impairment testing for tangible long-lived assets.

Question 72

Asset grouping is similar under U.S.GAAP and IFRS.

Question 73

Under IFRS,the impairment loss on a significant asset is the difference between the carrying value of the asset and ________.

A)the recoverable amount of the asset
B)the fair value of the asset
C)the value in use of the asset
D)the lesser of the fair value of the asset and its value in use

Question 74

Regular Corp.has four divisions.One of them,Weeble Products,was acquired on January 1,2016,for $60,000,000,and recorded goodwill of $6,000,000 as a result of that purchase.At December 31,2017,Weeble Products had a fair value (including goodwill)of $37,000,000.and the book value of the company's net assets (without goodwill)was $44,000,000.The fair value of Weeble's net assets (without goodwill)at December 31,2017 was $33,000,000.What amount of loss on impairment of goodwill should Regular record in 2017?

A)-0-
B)$2,000,000
C)$4,000,000
D)$11,000,000

Question 75

Under IFRS,firms report a reversal of an impairment loss as other comprehensive income.

Question 76

Stanvid Company provided the following information:
The qualitative assessment of goodwill is completed and it is more likely than not that goodwill is impaired.Describe the process for determining if Stanvid needs to record a goodwill impairment loss and prepare any required journal entries.

Question 77

Under IFRS,the firm may base impairment test for an asset group called a reporting unit.

Question 78

Regular Corp.has four divisions.One of them,Yulon Products,was acquired on January 1,2016,for $80,000,000,and recorded goodwill of $9,000,000 as a result of that purchase.At December 31,2017,Yulon Products had a fair value (including goodwill)of $66,000,000.The book value of the company's net assets (without goodwill)at December 31,2017 was $77,000,000.For 2017,Regular reported a loss on impairment of goodwill of $7,000,000.What was the fair value of the company's net assets (without goodwill)at December 31,2017?

A)$73,000,000
B)$68,000,000
C)$64,000,000
D)$59,000,000

Question 79

Under IFRS,the recoverable value of an asset is ________.

A)the greater of the asset's estimated replacement value and its value in use
B)the greater of the asset's estimated net fair value and its value in use
C)the lesser of the asset's estimated replacement value and its value in use
D)the lesser of the asset's estimated net fair value and its value in use

Question 80

Which of the following is not a part of the impairment test of a significant asset?

A)determine the asset's carrying value
B)determine the asset's fair value less costs to dispose
C)determine the fair value of the cash-generating unit without the asset
D)determine the discounted value of the future cash flows expected to be derived from the asset