Presented below is information related to equipment owned by a company at Decemb
ID: 2518927 • Letter: P
Question
Presented below is information related to equipment owned by a company at December 31, 2017.
Cost $5,600,000
Accumulated depreciation to date 640,000
Expected future net cash flows 4,000,000
Fair value 2,720,000
Assume that the company will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.
Using the attached T-account template:
Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
Prepare the journal entry to record depreciation expense for 2018.
If the fair value of the equipment at December 31, 2018 is $4,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.
Explanation / Answer
a.
Date
General Journal
Debit
Credit
Dec 31, 2017
Loss on Impairment
Accumulated Depreciation—Equipment
Explanation:
Note: The asset fails the recoverability test ($4,000,000 < $8,000,000)
Cost
$5600000
Accumulated Depreciation
(640000)
Carrying Amount
4960000
Fair Value
(2720000)
Loss on impairment
$2240000
b.
Date
General Journal
Debit
Credit
Dec 31, 2018
Depreciation Expense
680000
Accumulated Depreciation—Equipment
680000
Explanation:
New carrying amount $2720000
Useful life 4 years
Depreciation per year $680000
c. No entry necessary. Restoration of any impairment loss is not permitted if the asset is held for use.
Date
General Journal
Debit
Credit
Dec 31, 2017
Loss on Impairment
Accumulated Depreciation—Equipment
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