1-Presented below is information related to equipment owned by Sarasota Company
ID: 2587269 • Letter: 1
Question
1-Presented below is information related to equipment owned by Sarasota Company at December 31, 2017.
Cost
$10,710,000
Accumulated depreciation to date
1,190,000
Expected future net cash flows
8,330,000
Fair value
5,712,000
Assume that Sarasota will continue to use this asset in the future. As of December 31, 2017, 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, 2017. Prepare the journal entry to record depreciation expense for 2018-The fair value of the equipment at December 31, 2018, is $6,069,000. Prepare the journal entry (if any) necessary to record this increase in fair value.
2-
Cost
$10,710,000
Accumulated depreciation to date
1,190,000
Expected future net cash flows
8,330,000
Fair value
5,712,000
Explanation / Answer
As the expected future net cash flows of $8,330,000 is less than the Carrying value of equipment of $9,520,000 ($10,710,000 - $1,190,000), the equipment fails the recoverability test. Therefore a loss on Impairment is to be recorded in 2017. The impairment loss is calculated as follows:- (Amount in $)
Journal Entry on December 31, 2017 (Amount in $)
Depreciation expense for 2018 = $5,712,000/4 years = $1,428,000
Journal Entry on December 31, 2017 (Amount in $)
No entry is recorded for increase in fair value because restoration of impairment loss is not permitted.
Cost 10,710,000 Less: Accumulated Depreciation to date (1,190,000) Carrying Value as on December 31, 2017 9,520,000 Fair Value 5,712,000 Loss on Impairment 3,808,000Related Questions
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