Question : 151. Wheaton CompanyWheaton Company owns an apartment building that originally cost : 1245653

151. Wheaton Company

Wheaton Company owns an apartment building that originally cost $40 million and by the end of the current period has accumulated depreciation of $10 million, with net carrying value of $30 million. Wheaton Company had originally expected to collect rentals of $3.34 million each year for 30 years before selling the building for $16 million. Unanticipated placement of a new shopping center has caused Wheaton Company to reassess the future rentals. Wheaton Company expects the building to provide rentals for only 15 more years before Wheaton will sell it. Wheaton Company uses a discount rate of 8% per year in discounting expected rentals from the building.

Wheaton now expects to receive annual rentals of $1,200,000 per year for 15 years and to sell the building for $6.0 million after 15 years; these payments, in total, have a present value of $12.2 million when discounted at 8% per year. The building’s fair value is $11.0 million today and costs to sell are $600,000.

Applying IFRS, Wheaton would record the following entry 
A. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .   11,000,000
Apartment Building (New Valuation) . . . . . . . . . . . . . . . . . . . .10,000,000
Loss on Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   19,000,000
   Apartment Building (Acquisition Cost) . . . . . . . . . . . . . . . . . . . . . . . . .   40,000,000 
B. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .   10,000,000
Apartment Building (New Valuation) . . . . . . . . . . . . . . . . . . . .10,000,000
Loss on Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20,000,000
   Apartment Building (Acquisition Cost) . . . . . . . . . . . . . . . . . . . . . . . . .   40,000,000 
C. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .  10,000,000
Apartment Building (New Valuation) . . . . . . . . . . . . . . . . . . . 11,000,000
Loss on Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19,000,000
   Apartment Building (Acquisition Cost) . . . . . . . . . . . . . . . . . . . . . . . . .   40,000,000 
D. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .  10,000,000
Apartment Building (New Valuation) . . . . . . . . . . . . . . . . . . . 12,000,000
Loss on Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18,000,000
   Apartment Building (Acquisition Cost) . . . . . . . . . . . . . . . . . . . . . . . . .   40,000,000
E. Accumulated Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . .  10,000,000
Apartment Building (New Valuation) . . . . . . . . . . . . . . . . . . . 12,200,000
Loss on Impairment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17,800,000
   Apartment Building (Acquisition Cost) . . . . . . . . . . . . . . . . . . . . . . . . .   40,000,000

152. U.S. GAAP requires firms to recognize an impairment loss on a nonamortized intangible other than goodwill whenever the carrying value of the asset exceeds its 
A. undiscounted cash flows less cost to sell.
B. replacement cost less cost to sell.
C. undiscounted cash flows.
D. present value of future cash flows.
E. fair value.

153. Loren Company’s balance sheet shows a trade name acquired as part of a business combination with a carrying value of $30 million. The trade name has an indefinite life and therefore Loren does not amortize it. Negative publicity regarding the product carrying the trade name has reduced its fair value to $24 million and its value in use to $22 million. The entry is as follows:  
A. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 8,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 8,000,000
B. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 6,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 6,000,000
C. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 4,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 4,000,000
D. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 6,000,000
   Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,000,000
E. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 8,000,000
   Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000

154. Evers Company’s balance sheet shows a trade name acquired as part of a business combination with a carrying value of $60 million. The trade name has an indefinite life and therefore Evers does not amortize it. Negative publicity regarding the product carrying the trade name has reduced its fair value to $48 million and its value in use to $44 million. The entry is as follows:  
A. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,000,000
B. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . .12,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . 12,000,000
C. Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000,000
   Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 8,000,000
D. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 12,000,000
   Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000
E. Trade Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 16,000,000
   Loss on Impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .16,000,000

155. U.S. GAAP or IFRS require firms to test 
A. annually for impairment losses on goodwill.
B. whenever there is an indication of impairment due to changes in the legal or economic climate.
C. whenever there is an indication of impairment due to adverse regulatory conditions.
D. whenever there is an indication of impairment due to loss of key personnel.
E. all of the above

156. An impairment loss on all assets except intangibles that do not require amortization arises when 
A. the book value of the assets exceed the undiscounted cash flows.
B. the book value of the assets exceed the market value.
C. the market value of the assets exceed the undiscounted cash flows.
D. the book value of the assets exceed the discounted cash flows.
E. the book value of the assets exceed the liquidation value.

157. An impairment loss on all intangibles that do not require amortization, except goodwill, arises when 
A. the book value of the assets exceed the undiscounted cash flows.
B. the book value of the assets exceed the market value.
C. the market value of the assets exceed the undiscounted cash flows.
D. the book value of the assets exceed the discounted cash flows.
E. the book value of the assets exceed the liquidation value.

158. An impairment loss on a trademark arises when 
A. the book value of the trademark exceeds the undiscounted cash flows.
B. the book value of the trademark exceeds the market value.
C. the market value of the trademark exceeds the undiscounted cash flows.
D. the book value of the trademark exceeds the discounted cash flows.
E. the book value of the trademark exceeds the net realizable value.

159. An impairment loss on a brand name arises when 
A. the book value of the brand name exceeds the undiscounted cash flows.
B. the book value of the brand name exceeds the market value.
C. the market value of the brand name exceeds the undiscounted cash flows.
D. the book value of the brand name exceeds the discounted cash flows.
E. the book value of the brand name exceeds the liquidation value.

160. The economic value of a tangible asset may decline below its book value but an impairment loss would not be recognized when the 
A. undiscounted future cash flows exceed its book value.
B. undiscounted future cash flows exceed its market value.
C. discounted future cash flows exceed its book value.
D. discounted future cash flows exceed its market value.
E. discounted future cash flows exceed its liquidation value.