Additional Problem 8 (Part Level Submission) On January 1, 2015, Pronghorn Ltd.
ID: 2521055 • Letter: A
Question
Additional Problem 8 (Part Level Submission)
On January 1, 2015, Pronghorn Ltd. purchased equipment for $704,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2017, Pronghorn's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $506,000, the discounted future net cash flows was $448,800, and the current fair value of the equipment (after costs to sell) was $440,000.
(a1)
SHOW LIST OF ACCOUNTS
SHOW SOLUTION
SHOW ANSWER
LINK TO TEXT
LINK TO TEXT
LINK TO TEXT
(a2)
Account Titles and Explanation
Debit
Credit
Additional Problem 8 (Part Level Submission)
On January 1, 2015, Pronghorn Ltd. purchased equipment for $704,000. The equipment was assumed to have an 8-year useful life and no residual value, and was to be depreciated using the straight-line method. On January 1, 2017, Pronghorn's management became concerned that the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $506,000, the discounted future net cash flows was $448,800, and the current fair value of the equipment (after costs to sell) was $440,000.
Explanation / Answer
To know the asset is impaired or not we need to first compare book value with undiscounted net cash flow if the book value is more than it than impairement loss is recorded. The impairement loss is difference between FMV and book value of the asset Book value of asset as on Jan 1 2017 704000-(704000/8*2 years) 528000 undiscounted future net cash flows $506,000 as undiscounted future net cash flows is less than book value hence impairement will be recognized Impairemnt loss= Book value-FMV 528000-440000 88000 ans a2 Accounts title & Explantion Dr Cr Impairement Loss $88,000 Accumulated Depreciation-Equipment $88,000 (being impaurement loss recorded) For a1 your answer is correct
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