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