7.6 Learning Objective 7-6
1) If a long-term plant asset is impaired, the owner is required to adjust the carrying value downward to its fair value.
2) Which of the following is a CORRECT statement about asset impairment?
A) An asset is impaired if the net book value is less than the estimated future cash flows.
B) If an asset is impaired, the future cash flows will exceed the book value.
C) Under GAAP, an asset that has been written down because of impairment can be written back up if it increases in value in the future.
D) If an asset is impaired, the impairment loss is the difference between the net book value and the fair value.
3) Sylvia Company has a long-term plant asset with the following information as of the end of the year:
Net book value
|
$87,600
|
Estimated future cash flows
|
$70,000
|
Fair value
|
$65,000
|
The amount of the impairment loss is:
A) $15,000.
B) $17,600.
C) $19,000.
D) $22,600.
4) Samson Company has a machine with the following data:
Net book value
|
$90,000
|
Estimated future cash flows
|
$70,000
|
Fair value
|
$60,000
|
Is the machine impaired?
A) No, the net book value of the machine exceeds the estimated future cash flows from the machine.
B) No, the estimated future cash flows from the machine exceed the fair value of the machine.
C) Yes, the fair value of the machine is less than the book value of the machine.
D) Yes, the estimated future cash flows from the machine are less than the book value of the machine.
5) U.S. Generally Accepted Accounting Principles differ from IFRS in the accounting treatment of:
A) R and D Costs.
B) capitalization of internally generated intangible assets.
C) reversals of write-downs due to the impairment of plant assets.
D) all of the above.
6) What is the impairment test for long-term plant assets?
A) Is the book value greater than the fair value?
B) Is the fair value greater than the book value?
C) Is the book value greater than the expected future cash flows?
D) Are the expected future cash flows greater than the book value?
7) The impairment test for long-term assets applies to:
A) tangible long-term assets.
B) long-term liabilities.
C) current assets.
D) prepaid assets.
8) The impairment loss on long-term plant assets equals:
A) book value minus fair value.
B) book value minus estimated future cash flows.
C) estimated future cash flows minus fair value.
D) estimated future cash flows minus book value.