Sheridan Corporation uses straight-line depreciation, prepares adjusting entries

Question

Sheridan Corporation uses straight-line depreciation, prepares adjusting entries annually, and has a December 31 year end. It purchased equipment on January 1, 2017, for $196,600. The equipment had an estimated useful life of five years and a residual value of $20,050. On December 31, 2018, the company tests for impairment and determines that the equipment’s recoverable amount is $102,000.

a)Assuming annual depreciation has already been recorded at December 31, calculate the equipment’s carrying amount at December 31, 2018.

b)Calculate the amount of the impairment loss, if any.

Explanation / Answer

01-Jan-17 Purchase Cost 196600 Less: Residual Value 20050 Net Depreciable Value 176550 Useful Life 5.00 Depreciation PA 35310 A 31-Dec-18 Purchase Cost 196600 Less: Depreciation PA(35310*2) 70620 Carrying Value at 31/12/18 125980 B Recoverable Value 102000 Carrying Value at 31/12/18 125980 Since the Recoverable Value is lower than Carrying Value; This is resulting in Impairment Loss Impairment Loss 23980 (Carrying Value-Recoverable Value)

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