Presented below is information related to equipment owned by Sheridan Company at

Question

Presented below is information related to equipment owned by Sheridan Company at December 31, 2017. Cost $9,720,000 Accumulated depreciation to date 1,080,000 Expected future net cash flows 7,560,000 Fair value 5,184,000 Assume that Sheridan will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 5 years.

a) 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.)

b) 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.)

c) The fair value of the equipment at December 31, 2018, is $5,508,000. 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.)

Explanation / Answer

Recoverable Amount = Higher of Fair Value or Estimated Future Cash Flows Recoverable Amount = Higher of 5184000 or 7560000 i.e 7560000 WDV of the Asset on 31st Dec 2017 Cost 9720000 Less- Acc Depn 1080000 WDV 8640000 Impairment = WDV - Recoverable Amount = 8640000-7560000=1080000 Depreciation for 2018 = (8640000-1080000)/5Years = 1512000 a.Impairment entry Impairment Loss 1080000 To Accumulated Impairment loss/Equipment 1080000 b.Depreciation Entry Depreciation 1512000 To Accumulated Depreciation 1512000 c.Increase in Fair Value No entry Required since future cash flows value is more than fair value

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