Suppose a firm buys a machine with a 4 year useful life for $280,000. The machine has a salvage value of $20,000. Do each question separately.

V. Assume the firm uses straight-line depreciation. After two years of depreciation, the firm conducts an impairment test. It concludes the net cash flows from the machine for the remaining two years will be $60,000 per year. Is the machine impaired? Record the journal entry if it is impaired. Assume that the appropriate discount rate is 4%.

VI. Assume the firm uses the units of activity depreciation method where it allocates depreciation expense proportionate to the number of hours the machine is operated. It anticipates operating the machine for 3,000; 3,200; 3,300 and 3,500 hours in the next four years, respectively. Calculate the depreciation expense and net book value for each year.

VII. A steelmakers assets will largely consist of tangible assets like inventories and property, plant and equipment. List a firm for which the most valuable things that the firm owns are intangible assets that are not recorded on the balance sheet. Which of the two firms (the steelmaker or the firm you selected) is likely to have the larger market to book ratio? Explain why.