Account Titles and Explanation Debit Credit Account Titles and Explanation Debit

Question

Account Titles and Explanation

Debit

Credit

Account Titles and Explanation

Debit

Credit

Date

Account Titles and Explanation

Debit

Credit

12/31/14

12/31/15

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $16,600,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology was introduced that would accelerate the obsolescence of Roland’s equipment. Roland’s controller estimates that expected future net cash flows on the equipment will be $10,458,000 and that the fair value of the equipment is $9,296,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straightline depreciation.

(a) Prepare the journal entry (if any) to record the impairment at December 31, 2014. (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

(b) Prepare the journal entry for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $9,794,000.(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

(c) Prepare the journal entry (if any) to record the impairment at December 31, 2014 and for the equipment at December 31, 2015, assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015. (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

12/31/14

12/31/15

Explanation / Answer

WORKING NOTES:

JAN 2013-COST OF EQUIPMENT=$16,600,000

USEFULL LIFE=18 YEARS

DEPRECIATION=16,600,000/18=$9,22,222 EACH YEAR

DEPRECIATED VALUE AFTER 2 YEARS=16,600,000-9,22,222*2=$1,47,55,556

EXPECTED FUTURE NET CASH FLOWS=$1,04,58,000

FAIR VALUE AFTER 2 YEARS=$92,96,000

HIGHER OF DEPRECIATED VALUE AFTER 2 YEARS AND EXPECTED FUTURE NET CASH FLOWS IS=$1,47,55,556

IMPAIRMENT LOSS=$1,47,55,556-$92,96,000=$54,59,556

NEW USEFULL LIFE=4 YEARS

NEW DEPRECIATION CHARGE=92,96,000/4=$23,24,000

(a)JOURNAL ENTRY TO RECORD IMPAIRMENT AT DECEMBER 31,2014

(b) WORKING NOTE:

DEPRECIATED VALUE OF EQUIPMENT AS ON DEC 31,2015=$92,96,000-$23,24,000=$69,72,000

FAIR VALUE AS ON DEC 31,2015=$97,94,000

INCREASE IN VALUE =$97,94,000-69,72,000=$28,22,000

(c)If the asset is going to be disposed of, the costs associated with the disposal must be added back into the net of the future net value less the carrying value.

DATE ACCOUNT TITLES AND EXPLANATIONS DEBIT($) CREDIT($) 12/31/14 IMPAIRMENT LOSS A/C DR 54,59,556 TO STRAPPING EQUIMENT A/C 54,59,556 (BEING VALUE OF STRAPPING EQUIPMENT REDUCED AS A RESULT OF IMPAIRMENT LOSS)

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.