Exercise 11-16 Presented below is information related to equipment owned by Nova

Question

Exercise 11-16 Presented below is information related to equipment owned by Novak Company at December 31, 2017. Cost $9,270,000 Accumulated depreciation to date 1,030,000 Expected future net cash flows 7,210,000 Fair value 4,944,000 Assume that Novak will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no entry is required, select "No entry" for the account titles and enter 0 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 Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS The fair value of the equipment at December 31, 2018, is $5,253,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (If no entry is required, select "No entry" for the account titles and enter 0 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

Carrying value of the asset = cost - acc dep = 9270000-1030000 = 8240000 Recoverable value of the asset is the cash flow in the future, as it is over the fair value ie. $7210000. Impairment loss = Carrying value - recoverable value = 8240000 - 7210000 = 1030000 Journal entry Debit $ Credit $ Dec 31 17 Impairment Loss 1030000 Accumulated Impairment Losses 1030000 Depreciation amount = 7210000 / 4 = $1802500 Depreciation Journal Entry: Debit $ Credit $ 31-Dec-18 Depreciation amount 1802500 Accumulated depreciation 1802500

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