Reference no: EM133160884
Question - Vafides Corporation is a Chicago based company that produces construction equipment. Vafides Corporation is publicly traded and has a March 31, 2022 fiscal year end. The demand for Vafides Corp.'s products has increased in 2021 and 2022. Vafides did an analysis of the capabilities of the machinery used in production and machine #115 was assessed to be operating at only 50% of the production level and would be able to generate $120,000 from production and a sale of the machine in the next fiscal year.
As a result of this analysis Vafides purchased new machinery to replace Machine #115. The new machinery cost $475,000. Vafides Corporation will no longer use Machine #115 and is planning on offering the machine for sale. The original cost of Machine #115 was $400,000 and $255,000 of depreciation had been recognized as of March 31, 2022 which results in a net carrying value of $145,000. Additionally, the fair value of Machine #115 is $110,000.
In planning for the year-end financial statements the CFO has asked you to research the following accounting issue(s):
Accounting Issue:
1. Should an impairment loss be recognized on Machine #115?
a. Yes
b. No
2. What is the amount of the impairment loss (if any)?
a. $0
b. $10,000
c. $25,000
d. $35,000
e. $75,000
Extra Credit Research Case: Mulroy Inc. is a privately held corporation that owns 5 car dealerships. On February 2, 2022 the owner, Jack Mulroy pledged for the company to contribute a new Ford Explorer to the Heart of Mercy charity raffle for their annual fundraiser. The fundraiser was held on March 17, 2022 and the winning raffle ticket was selected. The car was delivered to the winner on April 4, 2022.
The accountant for Mulroy Inc. is unsure of when the contribution should be recognized as an expense.
Accounting Issue: When should Mulroy recognize the contribution expense?
Your Interpretation of the Guidance: Mulroy Inc. should recognize the contribution in
a. February 2022
b. March 2022
c. April 2022