Norway Co. manufactures and sells television receivers. Due to recent innovations (plasma screens), Norway suspects that some of its equipment may be impaired. The equipment’s historical cost is \($4,000,000\), but it has been owned, used, and depreciated for three years. When the equipment was purchased, Norway anticipated a 10-year useful life with no residual value.
Norway anticipates that the equipment will generate cash sales of \($1,000,000\) per year for the next three years and will require operating cash expenditures of \($250,000\) per year during that same time period. At the end of three years, the equipment will be scrapped. Similar equipment sells for \($1,950,000\) on the used asset market.
Required:
1. What circumstances should prompt Norway Co. to perform an asset impairment test?
2. Is Norway's manufacturing equipment impaired? Why or why not?
3. Prepare any journal entry necessary based on your answer in requirement 2.
4 . If two years from now there is an unexpected resurgence of demand for ordinary television receivers, will this impact any entry made in requirement 3?