Question

What is the effect of an impairment loss on the accounting equation?

a) It increases total assets.
b) It has no effect
c) It increases total stockholders' equity
d) it decreases total stockholders' equity
e) None of the above reflect the effect of an impairment loss on the accounting equation

Answer 1

An impairment loss decreases total assets and total stockholders' equity, reflecting a write-down of an asset's value on the balance sheet.

This correct answer is d)

Step-by-step explanation:

The effect of an impairment loss on the accounting equation is that it decreases total assets and subsequently decreases total stockholders' equity.

An impairment loss reflects a reduction in the recoverable value of an asset to below its carrying amount, which leads to a write-down of the asset's balance on the balance sheet.

The related credit entry to record the impairment decreases equity, specifically impacting retained earnings.

This correct answer is d)