Question

Problem 11-09 Novak Company uses specal strapping equipment in its packaging business. ne euphent was purchased in January 2019 for $12,500,000 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 Novak's equipment. Novak's controller estimates that expected future net cash flows on the equipment will be $7,875,000 and that the fair value of the equipment is $7,000,000. Novak intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Novak uses straight-line depreclation Prepare the joumal 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 entered. Do not Indent manually.) Date Account Titles and Explanation Debit Credit Рес. 31 Prepare the joumal entry for the equipment at December 31, 2021. The fair value of the equipment at December 31, 2021, is estimated to be $7,375,000. (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.) Date Account Titles and Explanation Debit Credit Dec. 31 Prepare the joumal entry (if any) to record the impairment December 31, 2020 and for the equipment at December 31, 2021, assuming that Novak intends to December 31, 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts, Credit account titles are automaw pose of the equipment and that it has not been disposed of as of indented when amount is entered. Do not indent manually.)

Answer 1

Solution given data, Purchase Price = $1,25,00,000 useful life = 8 years Salvage value = NIL 31 December | 2020 - futuro cash flow - $79.75.000 Fair value of cauilment = $70.00.000 useful life - 4 years canying value of Assets =$ 1.95,00000 - ( 125,00,000x2) - 1,95,00,000 - 31,25,000 - $93,75,000 future cash flows of 78175,000 is less than curent value of $ 93, 75,000

Preparation of Journal entry to record impairement at December 31,2020 Dali Account title and explanation Debit(8) Credit(a) Decallo Lossa impairement 23175,000 Accumulated Depreciation 2375,000 eau ilmend (93.45,000(-) 70,00,000) کر لی Preparation of Journal entry for the eauilment at December 31,2021 Decal Depreciation expense 17,50,000 2001 Accumulated depreciation 14,50,000 $ 70,00000 Preparation of Journal entry to record the impairement at December 31, 2020 and ear fan the eauipment at December 31, 2021 nuuu Date Account title and explanation Debit (s) Credit (0) 31/12/9820 Lossan impairmen 275,000 Accumulated Depreciation 23.45.000

31/121 2021 Accumulated Depreciation 3,75.000 Recovery of impairment loss 375,000 (73,45,000 (-) 70,00,000)