Question :
119.Ryadom Industries has several assets with book values that exceed : 1169038
119.Ryadom Industries has several assets with book values that exceed their fair market values. At the end of the year (December 31, 2016), management at Ryadom reviewed the circumstances around several of its assets during the current year and determined that they were impaired. Each of the assets reviewed has a book value (carrying value) that exceeds its fair market value. The accountant at Ryadom applied the recoverability test to each.
The first item is a Mixer that combines materials for a product that can now be made more efficiently due to new technology. The new mixer can produce seven products for every two that the Mixer Ryadom currently uses. This reduces Ryadom’s ability to compete with companies who have invested in the newly developed mixers. In addition, the Mixer now has a market value of zero. The Mixer cost $235,000, had an original residual of $35,000 and an estimated life of ten years. Ryadom uses straight-line depreciation for its equipment. The Accumulated Depreciation for the Mixer is $120,000. The present value of projected future cash flows generated by the Mixer are $50,000 over the next four years.
The second impaired asset is one of its facilities at a location that now cannot transport its product due to the closing of a rail line. Because the product cannot be transported given the present dilemma, the estimated future revenues generated by this facility are $30,000—the amount for which it is estimated that the facility can be sold. The facility buildings have a new value of $24,000 and the land has an unchanged estimated value of $7,000. The estimated remaining life of the facility is unchanged. The facility would require a large investment in order to accommodate trucks to pick up and transport the product or to deliver materials. This additional investment is not merited. Therefore, Ryadom plans to close and hopefully sell this facility. The facility has total recorded costs of $2,500,000 and its related accumulated depreciation account totals $1,800,000 (residual value was $100,000, estimated life was 8 years and straight-line depreciation was used). If the facility is not sold within the next two years, it will be demolished. It will be depreciated using the straight-line method assuming a zero residual value at that time.
Using the information shown, record the journal entry for the sale of the facility for $26,450. Assume that the sale took place on July 1, 2016, six months after the facility was written down.
A. Record the journal entry made to update the books prior to the sale.
B. In addition, assume that the new technology that made the Mixer owned by the company has been determined to environmental unsound and has been called off the market. The estimated revenues generated by the Mixer are recalculated to a total of $150,000 over the next four years. Explain what Ryadom Industries must do regarding its asset accounts regarding this turn of events.
120.C & T Company purchased a company that produced bottled water with fruit juice additives. The brand name for these products, Fruit Options, was well known and had a well-established customer base. At the time of purchase, January 2 of the current year, C & T valued this brand name at $250,000. The life of this intangible asset cannot be determined. However, it was assessed at the end of the year at the purchase price. The patent for the unique processing of the fruit juices had a remaining life of 8 years and an amount of $4,800 was recorded on the books for it. Prepare the journal entries for the amortization of these items at C & T’s year end, June 30.
