Presented below is information related to equipment owned by Suarez Company at D

Question

Presented below is information related to equipment owned by Suarez Company at December 31, 2014. Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $ 20, 000. As of December 31, 2014, 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, 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.) Prepare the journal entry (if any) to record depreciation expense for 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.) The asset was not sold by December 31, 2015. The fair value of the equipment of that date is $5,300, 000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20, 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.)

Explanation / Answer

Suarez company Details Amt $ Equipment cost        9,000,000 Accumulated depreciation till 12/31/2014        1,000,000 Carrying Value of Equipment        8,000,000 PV of expected cash flows        7,000,000 Fair Value        4,800,000 Fair Value less disposal cost        4,780,000 Recoverable value =Greater of Fair value less cost of disposal and PV of discounted cash flow; Here recoverable amount =$ 7000,000 Carrying value > Recoverable value So the impairment is $(8000000-7000000)=        1,000,000 Journal entry for impairment loss on Dec 31.2014. Date Account Title Dr $ Cr $ Dec 31.2014. Asset Impairment Loss          1,000,000 Asset Impairment Allowance        1,000,000 Revalued amount of Asset on Dec 31.2014        7,000,000 Remaining useful life in years                         4 Revised Annual depreciation per Year by SL method        1,750,000 Depreciation JV on Dec 31 2015 Date Account Title Dr $ Cr $ Dec 31.2015. Depreciation Expense        1,750,000 Accumulated Depreciation      1,750,000 Carrying value of Equipment on Dec 31.2015.        5,250,000 Fair Value on Dec 312.015        5,300,000 Less cots of Disposal              20,000 Fair value less cost of disposal        5,280,000 Increase in Fair value                30,000 Depreciation JV on Dec 31 2015 Date Account Title Dr $ Cr $ Dec 31.2015. Asset Impairment Loss              30,000 Asset Impairment Allowance                30,000

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