Reference no: EM132251519
Question 1 - Welch Corporation purchased Reno Candy Company on January 1, 2018. At that time, Reno Candy had the following assets and liabilities (stated at fair value):
Cash $124,000
Accounts receivable 276,000
Inventory 370,000
Property, plant, & equipment 600,000
Patent 130,000
Account payable 400,000
Notes payable 650,000
Welch paid $1,700,000 for Reno Candy.
Required: Make the journal entry to record the purchase.
Question 2 - On January 1, 2014, Denn Corporation purchased machinery for $1,300,000, which it installed in a rented factory. The machine has a 12-year useful life and a salvage value of $100,000. The company uses the straight-line method of depreciation for this type of machinery. On December 31, 2018 (after depreciation has been recorded for the year), because of increasing competition in the industry, Denn believes that the asset may be impaired and will have a remaining useful life of five years, over which it estimates the machine will generate $2,000,000 of cash inflows and $1,650,000 of total cash outflows. The cash flows are independent of the company's other activities and will occur evenly each year. Denn is unable to determine the fair value of the machine. The company's discount rate is 10%.
Required: Determine the amount of impairment loss, if any, and prepare the journal entry to record the impairment loss (if there is one).
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