Reference no: EM132640900
One of the cash generating units of Serenity Company is the production of liquor. At year end, the entity believed that the assets of the cash generating unit are impaired based on an analysis of economic indicators.
The assets and liabilities of the cash generating unit at carrying amount at year end are:
Cash 3,000,000
Accounts receivable 4,500,000
Allowance for doubtful accounts 750,000
Inventory 5,250,000
Property, plant and equipment 16,500,000
Accumulated depreciation 3,000,000
Goodwill 2,250,000
Accounts payable 1,500,000
Loans payable 750,000
The entity determined that the value in use of the cash generating unit is 22,500,000. The accounts receivable are considered collectible, except those considered doubtful.
Required:
You are being hired specifically for the purpose of helping the newly hired accounting clerk in the liquor business because the owner is not agreeable on the allocation of impairment as prepared for by the clerk. The owner questioned on cash being allocated an amount for impairment by the clerk.
Problem 1. Determine the carrying amount of the cash generating unit.
Problem 2. Determine the impairment loss, if any, of the cash generating unit.
Problem 3. Prepare journal entry to record the impairment loss.
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