Jones Company acquired a patent on an oil extraction technique on January 1, 2020 for $7,500,000. It was expected to have a 10 year life and no residual value. jones uses straight-line amortization for patents. On December 31, 2021, the future cash flows expected from the patent were $700,000 per year for the next eight years. The present value of these cash flows, discounted at jones market interest rate, is $4,200,000 (present value of cash flows, or fair market value of the patent is $4,200,000).

1. Conduct the Recoverability test to conclude whether the impairment of the patent has occurred.