Fryer Inc. owns equipment for which it paid $90 million. At the end of 2009, it had accumulated depreciation on the equipment of $27 million. Due to adverse economic conditions, Fryer's management determined that it should assess whether an impairment should be recognized for the equipment. The estimated undiscounted future cash flows to be provided by the equipment total $60 million, and the equipment's fair value at that point is $40 million. Under these circumstances, Fryer:

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Based on the information provided, Fryer would need to recognize an impairment loss on the equipment. The book value of the equipment is $63 million ($90 million original cost - $27 million accumulated depreciation). The undiscounted cash flows expected from the equipment are $60 million, which is less than the book value. Additionally, the fair value of the equipment is only $40 million, which is significantly less than the book value. The impairment loss would be calculated as the difference between the book value and fair value, which is $23 million ($63 million book value - $40 million fair value), and would be recorded as a loss on the income statement. Therefore, choice C is the best answer.

Fryer Inc Owns Equipment for Which It Paid $90 Million