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oAsset Impairment | Example:Guangzhou Company purchased a building five years ago for $600,000. It has an expected life of 10 years and no residual value. The company depreciates the building using the straight-line method.At the end of year 5, the building has a remaining book value of $300,000. C:\Users\sfurner\Desktop\Accounting Final Needed Materials\Final Exam Study Guide ACCT 701.docx
The company reviews the building for impairment and determines that it has a $275,000 fair value and the net cash inflow from the building will be $56,000 per year for the remaining 5 years. Steps to compute asset impairment.Step 1. Determine the asset book value. $300,000Step 2. Determine the asset fair value.$275,000Step 3. Determine the asset future cash inflows.($56,000*5)=$280,000Step 4. Pick the highest amount of Step 2 and Step 3.$280,000Step 5. If the amount under Step 4 is lower than the amount under Step 1, the asset is impaired.Yes, the asset is impaired.Step 6. The impairment loss is the difference between the amount under Step 1 and the amount under Step 2.$300,000 - $275,000 = $25,000Step 7. If the asset is impaired, you must reduce the historical costto the amountunder Step 2.The $600,000 historical cost must be to $275,000.MODULE 6Module 6: Chapter 12 & 13Common Stock:oAll classes of stock are designated as either common stockor preferred stock. oThese come with different financial benefits and provide different rights regarding the governance of the corporation. oWhen a corporation is formed, a single class of stock, known as common stock, is usually issued. oCorporations may later find that there are advantages to issuing one or more additional classes ofstock with varying rights and priorities. Stock with certain preferences (rights) over common stock is called preferred stock.oThe primary rights for owners of common stockare: Voting in the election of the board of directors. You will recall that the board controls the operating and financial policies of the company. Sharing in the profits and dividends of the company. Stock appreciation: The value of the stock increases above the price initially paid C:\Users\sfurner\Desktop\Accounting Final Needed Materials\Final Exam Study Guide ACCT 701.docx
o(Of course, it is also possible that the stocks’ value decreases if the company is unprofitable – this is a risk of owning stock). Dividends: Dividends are payments to a company’s shareholders from earnings. These payments are usually in the form of cash, butnon-cash assets and stock canalso be given as dividends. oPayment of dividends to common shareholders, however, depends on a company’s alternatives. Property Dividend: A property dividend is an alternative to cash or stock dividends. A property dividend is any dividend paid in forms other than cash or stock.