Question

Samuel Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2017 for $6,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2018, new technology was introduced that would accelerate the obsolescence of Samuel’s equipment. Samuel’s controller estimates that expected future net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000. Samuel intends to continue using the equipment, but it is estimates that the remaining useful life is 4 years. Samuel uses the straight-line method of depreciation. Required: (a) What is the carrying value (book value) of the equipment? (b) Prepare the journal entry (if necessary) to record the impairment at December 31, 2018. (c) Prepare any journal entries for the equipment at December 31, 2019. The fair value of the equipment at December 31, 2019 is estimated to be $3,450,000.

Answer 1

JU U @ Carrying Value of asset = $6,000,000 - $1,500,000 * = $ 4,500,000 Deprecations (slm basis) = $6,000,000 x2 = $1,500,000 8years ® carrying value of asset = $ 4,500,000 Less: Fair value of equipment = $3,300,000 - Loss of impairment $1,200,000 Impairment Entry: Dec 31, loss an Impairment $ 1,200,000 $ 1,200,000 2018 Accumulated depreciation © Depreciation = $3,450,000 - $ 862, 500 +year Entry $ 8634 500 Dec 31, 2019 Depreciation expense Accumulated sepreciation $862,500