SOLUTIONS

1. 71,000

200,000 < 211,000 [400,000 - [(400,000 - 40,000) ÷ 20) × 10.5] 211,000 - 140,000 = 71,000.
2. 0

300,000 > 285,000; No loss recognized.

3. A
4. Menzel paid $120,000 for the machine and estimated a useful life of 20 x 12 = 240 months and a salvage value
of 12,000. Thus, each month, the firm recorded (120,000 - 12,000)/240 = $450 in depreciation. Menzel bought
the machine on January 1, 2007, and reviewed its potential on July 1, 2017, which means it owned the machine
for all of 2007-2016 and 6 months in 2017, or a total of (10 x 12) + 6 = 126 months. Over this span, it recorded
126 x $450 = $56,700 in depreciation expense, which means the machine had a carrying amount of 120,000 -
$56,700 = $63,300. Because this amount is greater than the estimated undiscounted future net cash flows of
$60,000, an impairment has occurred. The amount of the impairment is equal to the difference between the
machine's carrying amount and the present value of its expected future net cash flows, or 63,300 - 45,000 =
18,300.
5. A
6.