Question

Martinez Corporation owns a patent that has a carrying amount of $310,000. Martinez expects future net cash flows from this patent to total $250,000. The fair value of the patent is $160,000. Prepare Martinez’s journal entry to record the loss on impairment.

Answer 1

Please find the detailed answer as follows:

Step-by-step explanation:

Step 1. Given information.

Carrying amount 310.000

Fair Value 160.000

Step 2. Formulas needed to solve the exercise.

Impairment loss = Carrying value - Fair Value

Step 3. Calculation.

Impairment loss = $310.000 - $116.000 = $194.000.

Step 4. Solution.

The carrying amount of $310.000 > fair value of $160.000. To measure the impairment loss, just do CV-FV. hence $310.000 - $116.000 = $194.000.

Loss on impairment $194.000

Patent $194.000