Exercise 11-18 The management of Sheridan Inc. was discussing whether certain eq

Question

Exercise 11-18 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 $1,053,000 with depreciation to date of $468,000 as of December 31, 2017. On December 31, 2017, management projected its future net cash flows from this equipment to be $351,000 and its fair value to be $269,100. The company intends to use this equipment in the future Prepare the journal entry (if any) to record the impairment at December 31, 2017.(If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually) Date Account Titles and Explanation Debit Credit Dec. 31 SHOW LIST OF ACCOUNTS LINK TO TEXT At December 31, 2018, the equipment's fair value increased to $304,200. 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 O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually Date Account Titles and Explanation Debit Credit Dec. 31

Explanation / Answer

Recognition of impairment Loss: Date Account Title Debit Credit 31-Dec-17 Loss on Impairment            2,34,000 Equipment 2,34,000 Equipment Cost          10,53,000 Accumulated Depn          (4,68,000) WDV            5,85,000 Future cash Flow            3,51,000 Impairment Amount (585k-351k)            2,34,000 Date Account Title Debit Credit 31-Dec-18 No Entry Note: 1. Determine Impairment Level :The fixed asset accountant calculates the undiscounted cash flows expected from each of the selected fixed assets, and lists these amounts in the fixed asset register next to the selected items. Take note of any situations where the carrying amount of an asset is greater than its undiscounted cash flows. For the noted items, calculate the difference between the carrying amounts and undiscounted cash flows, and create a journal entry for the difference in the general ledger as an adjusting entry. Only create this entry if the value of a designated asset is not expected to recover.

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