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Apex Corp. is in the process of determining the appropriate accounting treatment for a number of Year $7$ transactions and events related to property, plant, and equipment.

Review the draft memorandum below, along with the exhibits above, and make the necessary corrections, if any, to the proposed accounting treatments and to the supporting authoritative references in the FASB Accounting Standards Codification $($ASC$).$

To revise the memorandum, click on each segment of underlined text below and select the needed correction, if any, from the list provided. If the underlined text is already correct in the context of the memorandum, select $[$Original Text$]$ from the list. Paragraphs may contain more than one segment of underlined text to be considered for correction.

Apex Corporation

Year ended December $31,$ Year $7$

Property, plant, and equipment memorandum

This memorandum discusses the accounting treatments for significant Year $7$ events and transactions related to property, plant, and equipment.

Impairment of a manufacturing facility:

In March, Year $7,$ a competitor introduced a new, directly competing product, which resulted in a significant decline in the company$$s revenues and a decline in its manufacturing capacity needs. The company previously used two manufacturing facilities, but as a result of the decline in demand for its product, the company$$s second manufacturing facility has been left largely unused since October $1,$ Year $7.$ The company is preparing to repurpose the facility in Year $8$ to manufacture alternative products and plans to sell the facility in Year $15.$ Accordingly, the company needs to evaluate the $$1,238,000$ carrying amount of the facility as of December $31,$ Year $7.$ As a result of the evaluation, the company concluded that the carrying value of the facility is not recoverable. The company estimated the fair value of the manufacturing facility using an income approach. The company should recognize a Year $7$ impairment loss of $$738,000$ because FASB ASC $360-10-35-40$ indicates that an impairment loss is required to be measured as the amount by which the carrying amount of a long$-$lived asset $($asset group$)$ exceeds its fair value.Answered

In accordance with FASB ASC $360-10-45-4,$ the impairment loss should be recognized in income from continuing operations before income taxes.Answered

Land purchase:

On September $30,$ Year $7,$ the company purchased land, which was paid in full with cash. The company will build a new facility on the land. The costs associated with the purchase of the land are included in the letter from the company$$s attorney. The company should capitalize $$519,700$ to land in accordance with FASB ASC $360-10-30-1,$ which indicates that the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use.Answered

Exchange transaction:

On December $31,$ Year $7,$ the company exchanged a used truck and $$2,500$ in cash for a new truck with a fair value of $$18,000.$ The used truck had a carrying amount of $$14,000,$ and the company concluded that the exchange lacked commercial substance. The company should initially capitalize $$16,500$ for the new truck because FASB ASC $845-10-30-6$ requires an entity to recognize an asset received at the amount of the monetary consideration paid plus the recorded amount of the nonmonetary asset surrendered.Answered

Sale of corporate facility:

On December $31,$ Year $7,$ the company committed to sell one of its corporate facilities with a fair value of $$200,000$ and a carrying amount of $$190,000.$ The company$$s management will accept any offer between $$195,000$ and $$210,000.$ The company plans to start actively marketing the sale of the land in May, Year $8.$ The company will continue to use the facility until a buyer is identified. In accordance with FASB ASC $360-10-45-9,$ the facility is prohibited from being classified as held for sale and must be classified as held and used under property, plant, and equipment because not all held$-$for$-$sale criteria are met.Answered

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