Ryadom Industries Has Several Assets with Book Values That Exceed

question 12

Essay

Ryadom Industries has several assets with book values that exceed their fair market values.At the end of the year (December 31,2016),management at Ryadom reviewed the circumstances around several of its assets during the current year and determined that they were impaired.Each of the assets reviewed has a book value (carrying value)that exceeds its fair market value.The accountant at Ryadom applied the recoverability test to each.
The first item is a Mixer that combines materials for a product that can now be made more efficiently due to new technology.The new mixer can produce seven products for every two that the Mixer Ryadom currently uses.This reduces Ryadom's ability to compete with companies who have invested in the newly developed mixers.In addition,the Mixer now has a market value of zero.The Mixer cost $235,000,had an original residual of $35,000 and an estimated life of ten years.Ryadom uses straight-line depreciation for its equipment.The Accumulated Depreciation for the Mixer is $120,000.The present value of projected future cash flows generated by the Mixer are $50,000 over the next four years.
The second impaired asset is one of its facilities at a location that now cannot transport its product due to the closing of a rail line.Because the product cannot be transported given the present dilemma,the estimated future revenues generated by this facility are $30,000-the amount for which it is estimated that the facility can be sold.The facility buildings have a new value of $24,000 and the land has an unchanged estimated value of $7,000.The estimated remaining life of the facility is unchanged.The facility would require a large investment in order to accommodate trucks to pick up and transport the product or to deliver materials.This additional investment is not merited.Therefore,Ryadom plans to close and hopefully sell this facility.The facility has total recorded costs of $2,500,000 and its related accumulated depreciation account totals $1,800,000 (residual value was $100,000,estimated life was 8 years and straight-line depreciation was used).If the facility is not sold within the next two years,it will be demolished.It will be depreciated using the straight-line method assuming a zero residual value at that time.
Using the information shown,record the journal entries to record the amount of the impairment for these two situations.

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Definitions:

Rent-seeking Activity

Actions by individuals or firms to increase their own wealth without creating new wealth or value for society.

Taxing

The act of imposing charges on individuals or entities by the government in order to finance public spending and services.

Benefits

The advantages or positive outcomes that accrue from actions, activities, or projects, often used in evaluating decisions.

Shortsightedness Effect

The tendency of policy makers or individuals to prioritize immediate benefits or gains over long-term interests and consequences, often leading to suboptimal outcomes.