Account Titles and Explanation Debit Credit Date Account Titles and Explanation

Question

Account Titles and Explanation

Debit

Credit

Date

Account Titles and Explanation

Debit

Credit

12/31/14

Date

Account Titles and Explanation

Debit

Credit

12/31/15

Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $8,000,000 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 Dolphin's equipment. Dolphin's controller estimates that expected future net cash flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation.

Explanation / Answer

a. Carrying value of asset=8000000-2000000=6000000

(8000000/8)×2=2000000

b.

Future cash flow of 5000000 is less than 6000000

Impairment entry:

Loss on impairment 1600000

Accumulated depreciation 1600000

(6000000-4400000=1600000)

C.

Depreciation expense 1100000

Accumulated depreciation 1100000

(4400000/4=1100000)

d.

No depreciation is recorded in impaired asset to be disposed of. Recovery of impairment losses are recorded

12/31/2014

Loss on impairment 1600000

Accumulated depreciation 1600000

12/31/2015

Accumulated depreciation 200000

Recovery of impairment loss 200000

(4600000-4400000=200000)

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