Fryer Inc. owns equipment for which it paid $90 million. At the end of 2013, 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 loss 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:

Question

Quizplus · Accepted Answer

Fryer's carrying amount of the equipment is $63 million ($90 million - $27 million), which is greater than the estimated fair value of $40 million. In accordance with accounting standards, Fryer should perform an impairment test by comparing the carrying amount to the estimated fair value. Since the carrying amount is greater than the estimated fair value, an impairment loss must be recognized. The impairment loss would be the difference between the carrying amount and fair value, which is $23 million ($63 million - $40 million). Therefore, choice (C) is the correct answer.

Fryer Inc Owns Equipment for Which It Paid $90 Million