Presented below is information related to equipment owned by Suarez Company at D
ID: 2468282 • Letter: P
Question
Presented below is information related to equipment owned by Suarez Company at December 31, 2014.
7,156,800
Assume that Suarez will continue to use this asset in the future. As of December 31, 2014, 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, 2014. (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.)
Prepare the journal entry to record depreciation expense for 2015. (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
________________
The fair value of the equipment at December 31, 2015, is $7,604,100. 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.)
Account Titles and Explanation
Debit
Credit
_____________________
Cost $ 13,419,000 Accumulated depreciation to date 1,491,000 Expected future net cash flows 10,437,000 Fair value7,156,800
Explanation / Answer
Compute the carrying amount.
Carrying amount = Cost less accumulated depreciation = $13,419,000 - 1,491,000 = $11,928,000
Now compute the recoverable amount.
Rocoverable amount = higher of present value of cash flows and fair value of the asset.
present value of future cash flows = 10,437,000.
fair value of the asset = 7,156,800.
Therefore, the recoverable amount = $10,437,000.
Now, compute the impairment loss:
Impairment loss = Carrying value of the asset - Recoverable amount
= $11,928,000 - $10,437,000
= $1,491,000
Journlaize the accounting entry for the impairment of loss:
The fair value of the asset increased to 7,604,100, it will not have any effect to the accounitng and thus ignored.
NO journal entry required.
The Impairment loss is reversed on when the fair value of the asset increases more the recoverable amount.
Date Account title and explanation Debit($) Credit($) 31-12-2014 Impairment Loss 1491000 Accumulated Impairment Loss 1491000 To record the journal entry for the impairment loss