The management of Petro Garcia Inc. was discussing whether certain equipment sho

Question

The management of Petro Garcia 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 $ 995,400 with depreciation to date of $ 442,400 as of December 31, 2014. On December 31, 2014, management projected its future net cash flows from this equipment to be $ 331,800 and its fair value to be $ 254,380 .The company intends to use this equipment in the future.

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

2.At December 31, 2015, the equipment’s fair value increased to $287,560. Prepare the journal entry (if any) to record this increase in fair value.

Explanation / Answer

Equipment Cost 995,400

Less Depreciation 442,400

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Carrying amount of equipment 553000

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Carrying amount of depreciation 553000

Less Fair MArket VAlue 254380

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Impairment Loss 298620

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Journal Entry

Loss on impairment 298620

Accumulated Depreciation 298620

If fair market value increased to $ 287560

Carrying amount of depreciation 553000

Less Fair MArket VAlue 287560

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Impairment Loss 265440

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Journal Entry

Loss on impairment 265440

Accumulated Depreciation 265440

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