On January 1, 2014, Travis Company purchased machinery costing $3,000,000. The company uses straight-line depreciation and estimated the machinery's useful life to be 10 years and its residual value to be $600,000.
At the end of 2017, the company felt that technological advances had caused an impairment of its machinery and that its remaining useful life was only four years. The company estimates the machinery will generate cash inflows of $850,000 and cash outflows of $100,000 each of the next four years. The company uses a 15% rate of return to evaluate capital budgeting projects.
Required:
a.Determine if an impairment loss has occurred. (Show all calculations).
b.Calculate the amount of any impairment loss to be recognized. The present value of an annuity is 2.85498; present value of $1 is 0.57175; and future value of annuity is 4.99338.

Question

On January 1, 2014, Travis Company purchased machinery costing $3,000,000. The company uses straight-line depreciation and estimated the machinery's useful life to be 10 years and its residual value to be $600,000.
At the end of 2017, the company felt that technological advances had caused an impairment of its machinery and that its remaining useful life was only four years. The company estimates the machinery will generate cash inflows of $850,000 and cash outflows of $100,000 each of the next four years. The company uses a 15% rate of return to evaluate capital budgeting projects.
Required: 
a.Determine if an impairment loss has occurred. (Show all calculations).
b.Calculate the amount of any impairment loss to be recognized. The present value of an annuity is 2.85498; present value of $1 is 0.57175; and future value of annuity is 4.99338.

Quizplus · Accepted Answer

The Answer of On January 1, 2014, Travis Company purchased machinery costing $3,000,000. The company uses straight-line depreciation and estimated the machinery's useful life to be 10 years and its residual value to be $600,000.
At the end of 2017, the company felt that technological advances had caused an impairment of its machinery and that its remaining useful life was only four years. The company estimates the machinery will generate cash inflows of $850,000 and cash outflows of $100,000 each of the next four years. The company uses a 15% rate of return to evaluate capital budgeting projects.
Required: 
a.Determine if an impairment loss has occurred. (Show all calculations).
b.Calculate the amount of any impairment loss to be recognized. The present value of an annuity is 2.85498; present value of $1 is 0.57175; and future value of annuity is 4.99338.

On January 1, 2014, Travis Company Purchased Machinery Costing $3,000,000