Question

Computing and Assessing Plant Asset Impairment Zelbart Company purchases equipment for $225,000 on July 1, 2012, with an estimated useful life of 10 years and expected salvage value of $25,000. Straight-line depreciation is used. On July 1, 2016, economic factors cause the market value of the equipment to decline to $90,000. On this date, Zelbart examines the equipment for impairment and estimates $125,000 in future cash inflows related to use of this equipment. a. Is the equipment impaired at July 1, 2016 b. If the equipment is impaired on July 1, 2016, compute the impairment loss and prepare a journal entry to record the loss. Description Debit Credit c. What amount of depreciation expens vould Zeibart record for the 12 months from July 1, 2016 through June 30, 2017? Prepare a journal entry to record this depreciation expenRound to the nearest dollar. (Hint: Assume no change in salvage value.) Description the fin al statement effects template, show how the entries in parts band c affect Zeibart Company's balance sheet and income statement.

Answer 1

Answer (a) Is the equibment impaired at July 1, 2016 Cost of Equipment = $225000 purchased Salvage value = $25000 Estimated Useful life of = lo years Asset Annual Depreciation = cost - salvage value No. of useful life in years = $225.00 - $25000 loyears = $20000 carrying value of equipment = $225000 - ($20000X 4) on July 1, 2016 - $225.000 - $80000 = $145000 Market value on July 1, 2016 - $90000

0 0 since, carrying value of the equipment is less than market value of equipment at July 1, 2016. so, Therefore yes the equipment is impaired at Italy 1, 2016 (6) If the equipment is impaired on July 1, 2016 compute the impairment loss and prepare a Journal entry to record the loss o Impairment loss = carrying Value - market value) = ($145000 - $90000) = $55000 Debit Credit $55000 Journal entry Description Impairment loss aic Equipment alc (To record the impairment loss on Equipment) $ 55000

o what amount of Depreciation expense would Zeibart record for the 12 months from July 1, 2016 through June 30, 2017? prepare entry to record this depreciation expense o- Depreciation Expense = $90000 - $ 25000 6 years = $ 10800 Journal Entry Debit credit $ 10800 Description Depreciation expense arc Equipment aic (To record the depreciation Expense) $10800

(d) using the financial statiment effects, show how the entries in part bande I affect Zeibart company's balance sheet and Income statement : Balance Sheet Income statement Transaction cash + Noncash - Contra = liabilities & contrib. tEarned Asset Assets Assets capital capital Revenue - Expensernet b. Imparment & 1 + $14.500 - $5.5000 = 40 + $145mm (4.550) & 55 - $550 charge $0 $108 + $90000|-|$10800 = + $90000+ (10B00) $0 soal C. Depreciations o Expense