The management of Sheridan Inc. was discussing whether certain equipment should
ID: 2518242 • Letter: T
Question
The management of Sheridan Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $945,000 with depreciation to date of $420,000 as of December 31, 2017. On December 31, 2017, management projected its future net cash flows from this equipment to be $315,000 and its fair value to be $241,500. The company intends to use this equipment in the future.
(a)
Account Titles and Explanation
Debit
Credit
At December 31, 2018, the equipment’s fair value increased to $273,000. Prepare the journal entry (if any) to record this increase in fair value. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
The management of Sheridan Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $945,000 with depreciation to date of $420,000 as of December 31, 2017. On December 31, 2017, management projected its future net cash flows from this equipment to be $315,000 and its fair value to be $241,500. The company intends to use this equipment in the future.
Explanation / Answer
Impairment Loss is an amount by which carrying amount of the assets exceeds its recoverable amount,
Recoverable Amount is equal to Higher of Fair Value and Value in Use.
Therefore,
The journal entry to record the impairment at December 31, 2017:
Fair Value $241,500 Value in Use $315,000 Recoverable Amount $315,000 Carrying Amount $525,000 Impairment Loss $210,000Related Questions
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