Tery Company, a successful efforts company, has 100% of the working interestield in Texas. The field constitutes a cost center and is also an asset group forpurposes of testing for impairment. In 2019, the price of oil dropped significantly:therefore, Terry must test for impairment. The table below reflects Terry's latestexpected cash flows and risk-free rates for the remainder of the life of the field.Total Net Cash FlowEstimate (Market)(million $)ProbabilityAssessmentCredit-AdjustedRisk-Free RateYear2020$100.090.985.330%60%10%6.2%2021$91.250%88.375.420%30%6.9%$87.591.865.5202270%20%10%7.1%$ 62.450.245.8202355%20%25%6.7%$ 45.955.536.0202480%10%10%5.5%$ 31.621.015.4202560%20%20%6.1%REQUIRED:a. Assume that Terry's carrying value for the field is $300 million. Determinewhether Terry must book impairment and, if so, record the necessary journalentry. Round the present value factors to four decimal places.b. Assume that Terry's carrying value for the field is $400 million. Determinewhether Terry must book impairment and, if so, record the necessary journalentry. Round the present value factors to four decimal places.

Terry Company has aa 100% interest in the field of Texas. The field needs to be tested for…

REQUIRED: a. Assume that Terry's carrying value for the field is $300 million. Determine whether Terry must book impairment and, if so, record the necessary journal entry. Round the present value factors to four decimal places. b. Assume that Terry's carrying value for the field is $400 million. Determine whether Terry must book impairment and, if so, record the necessary journa entry. Round the present value factors to four decimal places.

REQUIRED: a. Assume that Terry's carrying value for the field is $300 million. Determine whether Terry must book impairment and, if so, record the necessary journal entry. Round the present value factors to four decimal places. b. Assume that Terry's carrying value for the field is $400 million. Determine whether Terry must book impairment and, if so, record the necessary journa entry. Round the present value factors to four decimal places.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 7E

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