Starburst Manufacturing Reports the Following Long-Term Assets for Its Lighting

question 27

Multiple Choice

Starburst Manufacturing reports the following long-term assets for its lighting division: $$\begin{array} { | l | r | r | } \hline & \text { Carrying value } & \text { Estimated fair value } \\\hline \text { Factory building (shared with other divisions) } & \$ 2,500,000 & \\\hline \text { Less: Accumulated depreciation } & ( 1,000,000) & \\\hline \text { Net book value } & \$ 1,500,000 & \$ 3,800,000 \\\hline \text { Land } & \$ 1,750,000 & \$ 3,500,000 \\\hline \text { Manufacturing equipment for lighting division } & \$ 525,000 & \\\hline \text { Less: Accumulated depreciation } & \$ 150,000 & \\\hline \text { Net book value } & \$ 375,000 &\$340,000 \\\hline \text { General factory equipment (used in several } & & \\\text { divisions) } & \$ 1,600,000 & \\\hline \text { Less: Accumulated depreciation } & \$ 900,000\\\hline \text { Net book value } & \$ 700,000 & \$ 650,000 \\\hline \text { Total net fixed assets } & \$ 4,325,000 & \\\hline\end{array}$$
As a result of new technology, Starburst believes that the lighting division's equipment in the manufacturing facility is nearly obsolete. They project the following future cash flows for the lighting division's operations:
Future period Cash-flow projection
Year 1 $50,000
Year 2 $35,000
Year 3 $20,000
Year 4 $12,000
Year 5 $6,000
For the purposes of impairment testing, which long-term assets will be used in the calculation of the loss?

• A) all fixed assets
• B) all fixed assets with the land excluded
• C) manufacturing equipment for lighting division and general factory equipment
• D) manufacturing equipment for lighting division

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