For several years, one of Prestland Company’s grocery stores has been unprofitable. At this time, management has not decided whether to close that location or do a major renovation effort and keep the store open. A note to Prestland’s financial statements indicates that the company tests assets for impairment when circumstances indicate that the recoverable value of a plant asset may be less than its recorded book value.

Prestland’s financial records indicate that the building where the store in question is located originally cost $500,000, had an estimated useful life of 20 years, and had an expected residual value of $100,000. Straight-line depreciation was used for four years. Management estimates that today’s current market value of the building is $375,000, which it considers a reasonable approximation of its recoverable value.
a. Determine the book value of the building before any adjustment for impairment has been made.
b. Determine the impairment loss, if any, that you recommend be recorded.
c. What is the building’s book value after your adjustment for impairment has been recorded? Due to uncertainty about the future use of the building, management decides that the useful life should be reduced to a total of nine years (depreciation for the first four years have already been recorded), and the residual value should be reduced to $60,000. What is the amount of depreciation for each succeeding year in the building’s revised estimated life?