Flynn Company purchased a building for $400,000. The current book value of the building is $200,000 and the fair market value is $180,000. The sum of future cash flows from the building is $160,000. According to GAAP, the amount of impairment loss that should be recognized is
A) $0
B) $20,000
C) $40,000
D) $120,000

Question

Quizplus · Accepted Answer

Under GAAP, an impairment loss must be recognized if the carrying amount of an asset exceeds its fair market value. In this case, the fair market value of the building is $180,000 and the current book value is $200,000. Therefore, the building is impaired by $20,000 ($200,000 - $180,000). The impairment loss that should be recognized is the lower of the impairment amount or the sum of future cash flows from the building, which is $160,000. Therefore, the impairment loss recognized should be $40,000 ($20,000 < $160,000).

Flynn Company Purchased a Building for $400,000