Reference no: EM133012655

Problem 1: The following are situations evidenced that a loss has been incurred. Which of these situations shows that a loss due to value impairment must be recognized?

I. There is a forecast of a significant decline in the profitability of the asset.

II. There are adverse changes in the legal or business climate.

III. There are significant cost overruns.

a. I only

b. I and II only

c. I, II and III

d. II and III only

Problem 2: Jethro Gibbs Inc., purchased a machinery worth ?600,000 in January 2018, depreciated this asset on a straight-line method over 6 years with no expected salvage value. Near the end of 2020 (third year of use), the firm concluded that the machine's operational value has been impaired to the point that its expected future cash flows are reasonably estimated to be ?150,000 over the remaining three more years. The machine's fair market value is approximately ?125,000 at the end of 2020. What amount should the machinery be reported at on December 31, 2020 statement of financial position under US GAAP?

a. 150,000

b. 125,000

c. 175,000

d. 100,000