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Madison Company acquired a depreciable asset at the beginning of Year 1 at a costof $12 million. At December 31, Year ,1 Madison gathered the

Madison Company acquired a depreciable asset at the beginning of Year 1 at a costof $12 million. At December 31, Year ,1 Madison gathered the following information related to this asset:

Carrying amount (net of accumulated depreciation). $10 million

Fair value of the asset (net selling price) . . . . $7.5 million

Sum of future cash flows from use of the asset . . . . . . . . $9 million

Present value of future cash flows from use of the asset $8 million

Remaining useful life of the asset 5 years

Required:

a. Determine the impact on Year 2 and Year 3 income from the depreciation and

possible impairment of this equipment under (1) I R S and (2) U.S. GAAP.

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