Question

Presented below is information related to equipment owned by Blue Company at December 31, 2020.

Cost		$10,980,000
Accumulated depreciation to date		1,220,000
Expected future net cash flows		8,540,000
Fair value		5,856,000

Blue intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $24,400. As of December 31, 2020, the equipment has a remaining useful life of 5 years.

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

Prepare the journal entry (if any) to record depreciation expense for 2021.

The asset was not sold by December 31, 2021. The fair value of the equipment on that date is $6,466,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $24,400.

Answer 1

Credit Account Titles and Explanation Loss on impairment Accumulated depreciation-Equipment Debit 3928400 3928400 Debit Credit Account Titles and Explanation No entry No entry Credit Account Titles and Explanation Accumulated depreciation-Equipment Recovery of loss on Impairment Debit 610000 610000 Workings: Cost Less: Accumulated depreciation Carrying Amount Less:Fair value, net of disposal costs Loss on impairment 10980000 1220000 9760000 5831600 3928400 =5856000-24400 No depreciation is recorded on assets intended to be disposed off Fair value, net of disposal costs, Revised Less: Fair value, net of disposal costs Recovery of loss on Impairment 6441600 5831600 610000 =6466000-24400 =5856000-24400