Recognizing and measuring impairment losses. Give the journal entry to recognize an impairment loss, if appropriate, in each of the following cases. If a loss does not qualify as an impairment loss, explain the reason, and indicate the appropriate accounting.

a. Commercial Realty Corporation leases office space to tenants in Boston. One of its office buildings originally cost $\$ 80$ million and has accumulated depreciation of $\$ 20$ million. The city of Boston has announced its intention to construct an exit ramp from a nearby expressway on one side of the office building. Rental rates in the building will likely decrease as a result. The expected future undiscounted cash flows from rentals and from disposal of the building decreased from $\$ 120$

million before the announcement to $\$ 50$ million afterward. The market value of the building decreased from $\$ 85$ million before the announcement to $\$ 32$ million afterward.

b. Refer to part

a. Assume that the undiscounted cash flows totaled $\$ 70$ million and that the market value totaled $\$ 44$ million after the announcement.

c. Medical Services Corporation plans, and then builds, its own office building and clinic. It originally anticipated that the building would cost $\$ 15$ million. The physicians in charge of overseeing construction had medical practices so busy that they did not closely track costs, which ultimately reached $\$ 25$ million. The expected future cash flows from using the building total $\$ 22$ million, and the market value of the building totals $\$ 16$ million.

d. Medco Pharmaceuticals acquired New Start Biotechnology two years ago for $\$ 40$ million. Medco allocated $\$ 25$ million to a patent held by New Start and $\$ 15$ million to goodwill. By the end of the current period, Medco has written down the book value of the patent to $\$ 20$ million. A competitor recently received approval for a biotechnology drug that will reduce the value of the patent that Medco acquired from New Start. The expected future undiscounted cash flows from sales of the patented drug total $\$ 18$ million, and the market value of the patent is $\$ 12$ million. The market value of the former New Start Biotechnology operation owned by Medco is now $\$ 25$ million.

e. Chicken Franchisees, Inc., acquires franchise rights in the Atlanta area for Chicken Delight Restaurants, a national restaurant chain. The franchise rights originally cost $\$ 15$ million; since acquisition, Chicken Franchisees has written down the book value to $\$ 10$ million. Chicken Delight Restaurants recently received negative publicity because the chickens it delivered to its franchisees contained potentially harmful pesticides. As a result, business has declined. Chicken Franchisees estimates that the future undiscounted cash flows associated with the Chicken Delight name total $\$ 6$ million and that the franchise rights have market value of $\$ 3$ million.