Financial Accounting

Learn the toughest concepts covered in your Financial Accounting class with step-by-step video tutorials and practice problems.

Long Lived Assets

Asset Impairments

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Asset Impairment

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Problem

Sprinting Printers, Inc. purchased a patent on a high-tech laser printer for $750,000. The patent gives legal protection for twenty years, but Sprinting Printers believes that competitors will be able to mimic its capabilities in fifteen years. SP uses the straight-line method when amortizing the printer. After ten years, SP discovers that a competitor has created a more efficient holo-printer. At this point, SP determines that the estimated future cash flows of the printer are $200,000. The fair value of the patent is zero on the open market. The entry to record the discovery of the new holo-printer would include: