Exercise 11-17 Presented below is information related to equipment owned by Flin
ID: 2569525 • Letter: E
Question
Exercise 11-17 Presented below is information related to equipment owned by Flint Company at December 31, 2017. Cost $9,900,000 Accumulated depreciation to date 1,100,000 Expected future net cash flows 7,700,000 Fair value 5,280,000 Flint intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $22,000. As of December 31, 2017, the equipment has a remaining useful life of 5 years. 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.) Date Account Titles and Explanation Debit Credit Dec. 31 LINK TO TEXT Prepare the journal entry (if any) 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.) Account Titles and Explanation Debit Credit LINK TO TEXT The asset was not sold by December 31, 2018. The fair value of the equipment on that date is $5,830,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $22,000. (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
Explanation / Answer
Flint Company
Given information:
Cost - $9,900,000
Accumulated depreciation = $1,100,000
Book value = $8,800,000
Expected future net cash flows = $7,700,000
Fair value = $5,280,000
Book value ($8,800,000) is higher than the expected future net cash flows ($7,700,000).
Hence, the equipment is impaired and must be written down to its fair value.
Impairment loss = book value – fair value
= $8,800,000 - $5,280,000 = $3,520,000
Date
Account Titles and Explanation
Debit
Credit
Dec 31 2017
Impairment loss
$3,542,000
Depreciation Expense
$3,542,000
(To record impairment loss)
Cost of disposal $22,000 is included in the loss on impairment.
No Journal Entry Needed
Upward revision permitted,
Fair value = $5,830,000
Less: asset disposal cost = $22,000
Adjusted fair value = $5,808,000
Since fair value is higher, book value has to be adjusted upwards by $5,808,000 – $5,258,000 = $550,000
Hence the entry would be,
Date
Account Titles and Explanation
Debit
Credit
Dec 31 2018
Accumulated Depreciation
$550,000
Recovery of loss on Impairment
$550,000
(To record book value adjusted upwards)
Date
Account Titles and Explanation
Debit
Credit
Dec 31 2017
Impairment loss
$3,542,000
Depreciation Expense
$3,542,000
(To record impairment loss)
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