Carla Company uses special strapping equipment in its packaging business. The eq
ID: 2549178 • Letter: C
Question
Carla Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $11,800,000 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 Carla’s equipment. Carla’s controller estimates that expected future net cash flows on the equipment will be $7,434,000 and that the fair value of the equipment is $6,608,000. Carla intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Carla uses straight-line depreciation. Collapse question part
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2017. (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.) Date Account Titles and Explanation Debit Credit Dec. 31
Explanation / Answer
Carrying value of equipment=11800000-(11800000/8*2)= $8850000 a 31-Dec Loss on Impairment 2242000 =8850000-6608000 Accumulated Depreciation-Equipment 2242000