ExpertHard1 markMultiple Choice
CPA · Question 39 · Area II: Balance Sheet Accounts
Silverstone Corp. has a machine with the following information at year-end:<br/>- Original cost: $500,000<br/>- Accumulated depreciation: $300,000<br/>- Estimated undiscounted future cash flows: $180,000<br/>- Fair value: $160,000<br/>- Costs to sell: $10,000<br/><br/>Under ASC 360, what amount should Silverstone report for this machine on its balance sheet?
Silverstone Corp. has a machine with the following information at year-end:<br/>- Original cost: $500,000<br/>- Accumulated depreciation: $300,000<br/>- Estimated undiscounted future cash flows: $180,000<br/>- Fair value: $160,000<br/>- Costs to sell: $10,000<br/><br/>Under ASC 360, what amount should Silverstone report for this machine on its balance sheet?
Answer options:
A.
$200,000
B.
$180,000
C.
$160,000
D.
$150,000
How to approach this question
Apply ASC 360 two-step impairment test: (1) Recoverability - compare book value to undiscounted cash flows; if book value > cash flows, asset is impaired. (2) Measurement - impaired asset is written down to fair value (don't deduct costs to sell for held-and-used assets).
Full Answer
C.$160,000✓ Correct
$160,000
Under ASC 360, long-lived assets held and used are tested for impairment when indicators exist. Step 1: Book value ($200,000) > undiscounted cash flows ($180,000), so the asset is impaired. Step 2: Write down to fair value ($160,000). Costs to sell are not deducted for assets held and used.
Common mistakes
Not recognizing impairment when recoverability test fails, using undiscounted cash flows for measurement, or deducting costs to sell for held-and-used assets
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