On January 1, 2012, Vallahara Company purchased machinery for$650,000, which it installed in a rented factory. It isdepreciating the machinery over 12 years by the straight-linemethod to a residual value of $50,000. Late in 2016, because ofincreasing competition in the industry, the company believes thatits asset may be impaired and will have a remaining useful life of5 years, over which it estimates the asset will produce total cashinflows of $1,000,000 and will incur total cash outflows of$825,000. The cash flows are independent of the company’s otheractivities and will occur evenly each year. Vallahara is not ableto determine the fair value based on a current selling price of themachinery. Vallahara’s discount rate is 10%. Required: 1. Prepareschedules to determine whether, at the end of 2016, the machineryis impaired and, if so, the impairment loss to be recognized. 2. Ifthe machinery is impaired, prepare the journal entry to record theimpairment. 3. If Vallahara uses IFRS and determines that the fairvalue of the machinery is $200,000 and that it would cost $10,000to sell the machine, how much would the company recognize as theimpairment loss? 4. Assuming that the recoverable amount of themachinery is determined to be $220,000 at the end of 2017, whatentry will Vallahara make to record this increase in value underU.S. GAAP? Under IFRS?