Jung Inc Owns a Patent for Which It Paid $66 Million

question 71

Multiple Choice

Jung Inc. owns a patent for which it paid $66 million. At the end of 2013, it had accumulated amortization on the patent of $16 million. Due to adverse economic conditions, Jung's management determined that it should assess whether an impairment loss should be recognized for the patent. The estimated undiscounted future cash flows to be provided by the patent total $43 million, and the patent's fair value at that point is $35 million. Under these circumstances, Lester:

• A)Would record no impairment loss on the patent.
• B)Would record a $7 million impairment loss on the patent.
• C)Would record a $15 million impairment loss on the patent.
• D)Would record a $31 million impairment loss on the patent.

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Definitions:

Business Days

Days of the week excluding weekends and public holidays, typically Monday through Friday, when business operations are conducted.

Fixed Charge Coverage

A financial metric evaluating how well a company can pay off its fixed expenses, like interest and leases, using its earnings before interest, taxes, depreciation, and amortization (EBITDA).

Times Interest Earned Ratio

A measure of a company's ability to meet its interest obligations, calculated as earnings before interest and taxes divided by interest expense.

Financing Activities

Transactions and events that affect the long-term liabilities and equity of a company, including issuing or repurchasing equity and debt.