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Impairment of asset

Presented below is information related to copyrights owned by SunCo Corporation at December 31, 2006.

Cost $2,700,000
Carrying amount 2,400,000
Expected future net cash flows 2,100,000
Fair value 1,200,000

Assume SunCo will continue to use this asset in the future. As of December 31, 2006, the copyrights have a remaining useful life of 4 years.

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2006.

(b) Prepare the journal entry to record amortization expense for 2007.

(c) The fair value of the copyright at December 31, 2007 is $1,400,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

Solution Preview

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2006.

Impairment is there if the expected future cash flows are less than the carrying amount. In this case the future cash flows are less than the carrying value and so there is an ...

Solution Summary

The solution explains how to record the impairment of an asset

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