Problem: The owner of a ski resort in Colorado is doing a review for impairment as of December 31, 20X1. The reason for the impairment is that the western U.S. is overbuilt with ski resorts, and the number of visitors to the area is way down.
Original cost: $3,000,000
Residual value: $300,000
Depreciation method: S/L over 30 years
Remaining life: 20 years
Estimated annual cash inflows: $80,000 (over remaining life)
Relevant rate: 4%
Required:
Q1. Determine whether the hotel is impaired (recoverability test).
Q2. Determine the amount of impairment (fair value test) and record the loss.
Q3. Determine the new book value for the hotel after the journal entry above.
Q4. Determine depreciation for 20X2. Assume S/L.
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