Question

Problem 11-09 (Part Level Submission)

Metlock Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $11,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Metlock’s equipment. Metlock’s controller estimates that expected future net cash flows on the equipment will be $6,930,000 and that the fair value of the equipment is $6,160,000. Metlock intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Metlock uses straight-line depreciation.

Prepare the journal entry (if any) to record the impairment at December 31, 2020. (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.)

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Dec 31	Loss on Impairment	$2,090,000
	Accumulated Depreciation		$2,090,000
	(To record Impairment loss)
Working
	Purchase cost	$11,000,000
	Less: Accumulated Depreciation	$2,750,000
	($11,000,000 x 2/8)
	Carrying Value	$8,250,000
	Fair Value	$6,160,000
	Impairment Loss	$2,090,000