Question

3. Exchange Intelligent Corporation recently acquired new semiconductor assembly equipment to be used in its production process. Intelligent Corporation traded in old semiconductor equipment that had an original cost of $300,000 and accumulated depreciation on the date of the exchange of $225,000. The fair value of the old equipment is $85,000. In addition, Intelligent Corporation signed a promissory note to pay $200,000 in three years plus interest at a market interest rate of 6%. What is the cost recorded for the new equipment? ____________________________________ What is the gain/(loss) on disposal of the old equipment? ____________________________ 4. Impairment The Blueberry Phone Company operates a factory to build its Crackberry phone. Technological advances by Blueberry’s competitors demolished Crackberry sales. Consequently, management is evaluating the Crackberry factory for impairment as of December 31, 2014. Below are facts about the factory. Original cost $150 million Accumulated depreciation 65 million Future cash flows: 2015 45 million 2016 20 million 2017 10 million Is factory impaired? ____________ Why? ________________________________________________ _____________________________________________________________________________________________ _____________________________________________________________________________________________ What is the present value of future cash flows rounded to $100,000 (Assume the cash is received at the end of each year and use an interest rate of 10%.): 2015 ________________________________ 2016 ________________________________ 2017 ________________________________ Total What is the impairment loss? ___________________________________________

Answer 1

Solution to 4:

The cost recorded for the new equipment will be :

Cost of the new equipment = Note payable + Fair value of the old equipment

Cost of the new equipment = $ 200,000 + $ 85,000

Cost of the new equipment = $ 285,000

Gain / (loss) on Disposal of equipment will be,

Fair value of the equipment - Book value of the equipment

Book value of equipment = Original cost - Accumulated Depreciation

= $ 300,000 - $ 225,000

= $ 75,000

So, gain/ (loss) = Fair value of the equipment - Book value of the equipment

= $ 85,000 - $ 75,000

So, Gain on sale of equipment is $ 10,000