Solar Petroleum owns 100% of the working interest in the Bearcat Field in West Texas.

The field has been producing and is expected to produce for 10 more years. Events have occurred that indicate that impairment may be necessary. Therefore, Solar must test for impairment of the field. Assume the following:

REQUIRED: Determine if impairment is necessary. If so, prepare the journal entries to record the impairment.

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Estimated future net cash flows before ARO Estimated ARO cash flows Estimated future net cash flows after ARO Net book value of field assets Net book value of field assets without ARO Undiscounted Discounted $10,600,000 $6,000,000 (4,000,000) (1,852,780) $ 6,600,000 $ 4,147,220 $10,852,780 9,000,000