Harmony Resorts Inc. owns and manages resort properties. On January 15, 2008, one of its properties was found to be adjacent to a toxic chemical disposal site. As a result of the negative publicity, this property’s bookings dropped 40% during 2008. On December 31, 2008, the accounts of the company showed the following details regarding the impaired property:
|
Land |
$ 30,000,000 |
|
Buildings and improvements (net) |
120,000,000 |
|
Equipment (net) |
25,000,000 |
|
Total |
$175,000,000 |
Management decides that closing the resort is the only option. As a result, it is estimated that the buildings and improvements will be written off completely. The land can be sold for other uses for $17 million, while the equipment can be disposed of for $6 million, net of disposal costs.
a. Provide the journal entry to record the asset impairment on December 31, 2008.
b. Provide the note disclosure for the impairment.