Macon Company Macon Company Owns an Apartment Building That Originally

question 102

Multiple Choice

Macon Company Macon Company owns an apartment building that originally cost $40 million and by the end of the current period has accumulated depreciation of $10 million, with net carrying value of $30 million.Macon Company had originally expected to collect rentals of $3.34 million each year for 30 years before selling the building for $16 million.Unanticipated placement of a new shopping center has caused Macon Company to reassess the future rentals.Macon Company expects the building to provide rentals for only 15 more years before Macon will sell it.Macon Company uses a discount rate of 8% per year in discounting expected rentals from the building.
Macon now expects to receive annual rentals of $2.7 million per year for 15 years and to sell the building for $10.0 million after 15 years; these payments, in total, have a present value of $26.2 million when discounted at 8% per year.The building's fair value is $25 million today.Costs to sell are estimated at $1,000,000.
Using the Macon Company data, under U.S.GAAP:

• A)no impairment loss has occurred.
• B)an impairment loss has occurred in the amount of $3.8 million.
• C)an impairment loss has occurred in the amount of $6 million.
• D)an impairment gain has occurred in the amount of $6 million.
• E)an impairment gain has occurred in the amount of $3.8 million.

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Definitions:

Valid

The extent to which a concept, conclusion, or measurement is well-founded and likely corresponds accurately to the real world.

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