Presented below is information related to equipment owned by Suarez Company at D
ID: 2485976 • Letter: P
Question
Presented below is information related to equipment owned by Suarez Company at December 31, 2014.
Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $ 20,400 . As of December 31, 2014, the equipment has a remaining useful life of 4 years.
A). Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014.
B). Prepare the journal entry (if any) to record depreciation expense for 2015.
C). The asset was not sold by December 31, 2015. The fair value of the equipment on that date is $5,406,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,400.
Cost $9,180,000 Accumulated depreciation to date 1,020,000 Expected future net cash flows 7,140,000 Fair value 4,896,000Explanation / Answer
A). Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2014
Answer
Dr Loss on impairment $3,264,000
Cr Accumulated Depreciation-Equipment $3,264,000
Cost = $9,180,000
Less: Acc. Depreciation = -1,020,000
CArrying Amount = $8,160,000
Fair value = $4,896,000
Loss on impairment = $3,264,000
B). Prepare the journal entry (if any) to record depreciation expense for 2015.
DR Depreciation Expense $2,040,000
Cr Acc. Depreciation-Equipment $2,040,000
Working notes:-
New carrying amount = $8,160,00
Useful Life = 4 years
Depreciation per year = $2,040,000
C). The asset was not sold by December 31, 2015. The fair value of the equipment on that date is $5,406,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,400.
Fair value $5,046,000 Less: Cost of disposal $ 20,400 $5,025,600 Book value $8,160,000 Less: Loss on impairment $3,624,000 $4,536,000 $ 489,600 Dr Accumulated Dep-Equipment $ 489,600 Cr Recovery of loss on impairment $ 489,600