18-Adjustment of Depreciable Base. A truck was acquired on July 1, 2015, at a co

Question

18-Adjustment of Depreciable Base. A truck was acquired on July 1, 2015, at a cost of $189,000. The truck had a six-year useful life and an estimated salvage value of $21,000. The straight-line method of depreciation was used On January 1, 2018, the truck was overhauled at a cost of $17,500, which extended the useful life of the truck for an additional two years beyond that originally estimated (salvage value is still estimated at $21,000). In computing depreciation for annual adjustment purposes, expense is calculated for each month the asset is owned Instructions Prepare the appropriate entries for January 1,2018 and December 31, 2018. 19-Impairment Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $6,000,000 and had an estimated useful ife of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Dolphin remaining useful life is 4 years. Dolphin uses straight-line depreciation. of Dolphin's equipment. Dolphin's controller estimates that expected future intends to continue using the equipment, but it is estimated that the Instructions (a) What is the carrying value of the asset? (b) Prepare the journal entry (if any) to record the impairment at December 31, 2017 (c) Prepare any journal entries for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $3,450,000. (d) Repeat the requirements for (a) and (b), assuming that Dolphin intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018.

Explanation / Answer

Question 19). a). Solution :- Carrying value of asset = 6000000 - (6000000 / 8 * 2)

= 6000000 - (750000 * 2)

= 6000000 - 1500000

= $ 4500000.

Conclusion :- Carrying value of asset = $ 4500000.

b).   Journal entry

Loss on impairment A/c Dr.

To Accumulated depreciation A/c

1200000

1200000

(Loss on impairment = 4500000 - 3300000 = $ 1200000)

c).   Journal entry

Depreciation A/c Dr.

To Accumulated depreciation A/c

825000

825000

[ Depreciation expense = (4500000 - 1200000) / 4 = $ 825000 ]

d).   Journal entry

Loss on impairment A/c Dr.

To Accumulated depreciation A/c

1200000

1200000

Accumulated depreciation A/c Dr.

To Impairment loss recovery A/c

150000

150000

( Impairment loss recovery = 3450000 - 3300000 = $ 150000)

Date General journal Debit ($) Credit ($) Dec. 31, 2017

Loss on impairment A/c Dr.

To Accumulated depreciation A/c

1200000

1200000

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