In 2017, Yumster Company Determined That a Production Machine Used

question 60

Multiple Choice

In 2017, Yumster Company determined that a production machine used in its operations was impaired and an impairment loss of $110,000 was recognized. In 2017, the fair value of the asset increased by $170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2017?

• A) U.S. GAAP permits the recognition of this impairment reversal as income from continuing operations.
• B) U.S. GAAP permits the recognition of this impairment reversal as other comprehensive income.
• C) U.S. GAAP allows the recognition of this impairment reversal as either income from continuing operations or as other comprehensive income, depending upon management's intent.
• D) U.S. GAAP does not permit recognition of gains on reversal of previous impairment loss write-downs.

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Definitions:

Option Contracts

Agreements between two parties granting one the right, but not the obligation, to buy or sell an asset at a pre-agreed price within a specified time frame.

In-The-Money Option

An option with an exercise price that is favorable compared to the current market price of the underlying asset.

Initial Investment

The initial amount of money spent to start a project, purchase an asset, or embark on a financial venture, prior to any earnings or gains.

Conversion Ratio

A specific number of shares a bondholder can receive for each bond if they choose to convert it into stock.