Bramble Company uses special strapping equipment in its packaging business. The
ID: 2411036 • Letter: B
Question
Bramble Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Bramble’s equipment. Bramble’s controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Bramble intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Bramble uses straight-line depreciation.
Account Titles and Explanation
Debit
Credit
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Account Titles and Explanation
Debit
Credit
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Date
Account Titles and Explanation
Debit
Credit
12/31/17
12/31/18
Bramble Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Bramble’s equipment. Bramble’s controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Bramble intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Bramble uses straight-line depreciation.
Explanation / Answer
(a) Debit credit
Dec 31 Loss in impairment $2,356,000
Accumulated depreciation $2,356,000
(Loss on impairment $93,00,000 - 6,944,000)
Note- Carrying value of asset = $12,400,000-31,00,000*
= $93,00,000
*($12,400,000 /8) × 2= 31,00,000
(b) Debit credit
Dec 31 Depreciation expenses $1,829,000
Accumulated depreciation $1,829,000
(Depreciation = 7,316,000/4)
(c) Debit Credit
Loss in impairment $2,356,000
Accumulated depreciation $2,356,000
Accumulated depreciation $372,000
Recovery of impairment loss $372,000
($7,316,000 - 6,944,000)