Question

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 all required journal entries (if any) at December 31, 2021. The fair value of the equipment at December 31, 2021, is estimated to be $6,490,000. (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

Metlock Company Carrying value of asset: $11,000,000-$2,750,000* = $8,250,000. *($11,000,000 /8) x 2 Carrying value of asset: $11,000,000 - $2,750,000* = $8,250,000. *($11,000,000 /8) x 2 Future cash flows ($6,930,000) < Carrying value ($8,250,000) 2090000 Impairment entry: Loss on Impairment a/c Dr. To Accumulated Depreciation $8,250,000 - $6,160,000 2090000 1540000 Depreciation Expense a/c Dr. To Accumulated Depreciation ($6,160,000 /4) 1540000 2090000 31.12.2020 Loss on Impairment a/c Dr. To Accumulated Depreciation 2090000 330000 31.12.2021 Accumulated Depreciation a/c Dr. To Recovery of Impairment Loss ($6,490,000 - $6,160,000) 330000