QUESTIONS 45 THROUGH 68 RELATE TO FINANCIAL STATEMENT ANALYSIS

57. Assume U.S. GAAP (generally accepted accounting principles) applies unless

otherwise noted.

A company has equipment with an original cost of $850,000, accumulated

amortization of $300,000 and 5 years of estimated remaining useful life. Due to a

change in market conditions the company now estimates that the equipment will

only generate cash flows of $80,000 per year over its remaining useful life. The

company’s incremental borrowing rate is 8 percent. Which of the following

statements concerning impairment and future return on assets (ROA) is most

accurate? The asset is:

A. impaired and future ROA increases.

B. impaired and future ROA decreases.

C. not impaired and future ROA increases.

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