Presented below is information related to equipment owned by Suarez Company at D
ID: 2497923 • Letter: P
Question
Presented below is information related to equipment owned by Suarez Company at December 31, 2014.
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.
A) 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.)
Account Titles and Explanation
Debit
Credit
B) 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
Accumulated Depreciation ??
C) The fair value of the equipment at December 31, 2015, is $12,051,300. 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 $ 21,267,000 Accumulated depreciation to date 2,363,000 Expected future net cash flows 16,541,000 Fair value 11,342,400Explanation / Answer
Calculation of Impairment loss:
Cost
$ 21,267,000
Less: Accumulated depreciation to date
$ (2,363,000)
Book Value
$ 18,904,000
Expected future net cash flows
$ 16,541,000
Fair value
$ 11,342,400
Recoverable amount (Higher)
$ 16,541,000
Impairment loss = Book Value - recoverable amount
$ 2,363,000
Journal Entry for Impairment:
A
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
Impairment Loss
$ 2,363,000
Accumulated Impairment Losses
$ 2,363,000
(Being Impairment recorded)
B
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
Depreciation Expense
$ 4,135,250
Accumulated Depreciation
$ 4,135,250
(Being Depreciation recorded) = 16541000 / 4
C
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
No Entry
No Entry
(There should no entry for upward revaluation)
Calculation of Impairment loss:
Cost
$ 21,267,000
Less: Accumulated depreciation to date
$ (2,363,000)
Book Value
$ 18,904,000
Expected future net cash flows
$ 16,541,000
Fair value
$ 11,342,400
Recoverable amount (Higher)
$ 16,541,000
Impairment loss = Book Value - recoverable amount
$ 2,363,000
Journal Entry for Impairment:
A
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
Impairment Loss
$ 2,363,000
Accumulated Impairment Losses
$ 2,363,000
(Being Impairment recorded)
B
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
Depreciation Expense
$ 4,135,250
Accumulated Depreciation
$ 4,135,250
(Being Depreciation recorded) = 16541000 / 4
C
Date
Account Titles and Explanation
Debit
Credit
Dec. 31
No Entry
No Entry
(There should no entry for upward revaluation)