Reference no: EM132601368
Question - On September 30th, 2010, Harris Pilton purchased a noncurrent asset for $4,500,000. It was estimated to have a 15-year useful life with $500,000 of salvage value. The company's policy is to depreciate its noncurrent assets using straight-line depreciation. On December 31st, 2020, Harris Pilton became concerned that as a result of new technology, the asset might be impaired. The company believes the asset could be sold on December 31 for $900,000 but it would cost $30,000 to sell. If the company continues to use the asset for its remaining useful life, the asset would generate the following cash flows: $1,000,000, $850,000, $750,000, $400,000, and $350,000. The applicable discount rate is 9%.
Instructions -
(1) Determine whether this noncurrent asset is impaired or not. If the asset is impaired, what is the amount of the impairment loss that should be recognized this period?
(2) The financial manager believes that if the asset is in fact impaired, any impairment losses should be included as part of cost of goods sold. Do you agree with this statement? Why or why not?
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