Problem 11-9 (Part Level Submission) Cullumber Company uses special strapping eq
ID: 2558627 • Letter: P
Question
Problem 11-9 (Part Level Submission)
Cullumber Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $10,300,000 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 Cullumber’s equipment. Cullumber’s controller estimates that expected future net cash flows on the equipment will be $6,489,000 and that the fair value of the equipment is $5,768,000. Cullumber intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Cullumber uses straight-line depreciation.
(a)
Account Titles and Explanation
Debit
Credit
Problem 11-9 (Part Level Submission)
Cullumber Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $10,300,000 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 Cullumber’s equipment. Cullumber’s controller estimates that expected future net cash flows on the equipment will be $6,489,000 and that the fair value of the equipment is $5,768,000. Cullumber intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Cullumber uses straight-line depreciation.
Explanation / Answer
Date Account titles and explanations Debit Credit 31-Dec Loss on impairment 1,957,000 Accumulated depreciation 1,957,000 (7725000-5,768,000) Equipment carrying value original cost 10,300,000 lessAccumulated depreciation 2,575,000 (10300000/8)*2 Equipment carrying value 7,725,000 Expected future net cash flow 6,489,000 since the future net cash flow is less than the carrying value impairment has said to occur