Reference no: EM132551202
On March 1, 20x0, Thomas Company acquired a machine for $3,000,000 and estimates a 10 year life, $150,000 salvage and uses the Double-Declining-Balance method for this class of asset. At the end of 20x3 (after recording depreciation for the current year), Thomas determined it was necessary to evaluate this equipment for impairment. The company estimates this equipment will generate cash inflows of $400,000 per year and cash outflows of $150,000 per year for the next four years. The company uses a 15% discount rate to evaluate operating assets.
Question 1: Determine the amount of the impairment loss (if any) to be recognized if Thomas intends to dispose of this asset. The present value of an ordinary annuity of 15% for 4n is 2.85498; present value of $1 factor for 15%, 4n is 0.57175; and future value of an annuity at 15% for 4n is 4.99338. Thomas believes the present value is a good indicator of fair value in today's market. They also feel that $13,745 is a reasonable estimate for disposal costs.
Impairment Loss (if any) is:
Group of answer choices
Option 1: $228,800 impairment loss
Option 2: $280,000 impairment loss
Option 3: $528,800 impairment loss
Option 4: $580,000 impairment loss