Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT A
ID: 2570104 • Letter: A
Question
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Account Titles and Explanation
Debit
Credit
Presented below is information related to equipment owned by Skysong Company at December 31, 2017.Cost $9,630,000 Accumulated depreciation to date 1,070,000 Expected future net cash flows 7,490,000 Fair value 5,136,000
Skysong intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $21,400. As of December 31, 2017, the equipment has a remaining useful life of 4 years.
Explanation / Answer
a
Prepare the journal entry to record the impairment of the asset at December 31 2017
$
Cost
9630000
Less: Accumulated depreciation
-1070000
Carrying Amount
8560000
Less: Fair Value
-5136000
3424000
Plus: Cost of disposal
21400
Loss on impairment
3445400
Journal entry
Impairment loss
3445400
Accumulated depreciation
3445400
b
Prepare a journal entry to record depreciation expense 2018
No journal entry required,
Asset is held for the purpose of disposal, so it should be treated as inventory. No depreciation required
C
Book value after recognizing impairment loss
(A)
Carrying Amount
8560000
Less: Impairment loss
-3445400
Book value
5114600
(B)
Fair value
5671000
Add: Disposal value
-21400
5649600
Book value has to be adjusted upwards
Fair value
5649600
Less: Book value
-5114600
(A-B)
535000
Journal entry
Accumulated depreciation
535000
Recovery on loss of equipment
535000
a
Prepare the journal entry to record the impairment of the asset at December 31 2017
$
Cost
9630000
Less: Accumulated depreciation
-1070000
Carrying Amount
8560000
Less: Fair Value
-5136000
3424000
Plus: Cost of disposal
21400
Loss on impairment
3445400
Journal entry
Impairment loss
3445400
Accumulated depreciation
3445400
b
Prepare a journal entry to record depreciation expense 2018
No journal entry required,
Asset is held for the purpose of disposal, so it should be treated as inventory. No depreciation required
C
Book value after recognizing impairment loss
(A)
Carrying Amount
8560000
Less: Impairment loss
-3445400
Book value
5114600
(B)
Fair value
5671000
Add: Disposal value
-21400
5649600
Book value has to be adjusted upwards
Fair value
5649600
Less: Book value
-5114600
(A-B)
535000
Journal entry
Accumulated depreciation
535000
Recovery on loss of equipment
535000
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