Jung Inc.owns a patent for which it paid $66 million.At the end of 2016,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.

Question

Quizplus · Accepted Answer

The carrying value of the patent is $50 million ($66 million - $16 million). The expected future cash flows of $43 million are less than the carrying value of $50 million, which indicates that an impairment loss should be recognized. The fair value of the patent is $35 million, which is less than its carrying value of $50 million. Therefore, the impairment loss will be the difference between the carrying value and fair value, which is $15 million ($50 million - $35 million).

Jung IncOwns a Patent for Which It Paid $66 Million