Five Years Ago, Goodman, Inc

question 60

Multiple Choice

Five years ago, Goodman, Inc., purchased a patent for $110,000. Lower demand for the product produced under this patent necessitates that an impairment test be made. On the date of purchase, the patent had an estimated useful life of eleven years. It currently has a remaining useful life of four years. The current fair value of the patent is $43,000. Company management estimates that the patent will generate future cash flows of $12,000 per year for the next four years.
The amount of the impairment loss to be recognized is

• A) $50,000.
• B) $60,000.
• C) $12,000.
• D) $17,000.

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Definitions:

Return on Equity Ratio

A measure of financial performance calculated by dividing net income by shareholders' equity, indicating how well a company uses investments to generate earnings growth.

Quality of Income Ratio

A financial metric that evaluates the ability of a company to translate its earnings into cash, reflecting the quality and sustainability of its earnings.

Cash Ratio

A liquidity metric that measures a company's ability to cover its short-term liabilities with its cash and cash equivalents.

Long-Term Debt

Debt that is due to be paid off over a period longer than one year.