Question

Exercise 11-16 Presented below is information related to equipment owned by Cheyenne Company at December 31, 2017. Cost Accumulated depreciation to date Expected future net cash flows Fair value $10,800,000 1,200,000 8,400,000 5,760,000 Assume that Cheyenne will continue to use this asset in the future. As of December 31, 2017, 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, 2017. (If no entry is required, select "No entry" for the account tities and enter o 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 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry to record depreciation expense for 2018. (If no entry is required, select "No entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Exercise 11-16 Presented below is information related to equipment owned by Cheyenne Company at December 31, 2017. Cost $10,800,000 Accumulated depreciation to date 1,200,000 Expected future net cash flows 8,400,000 Fair value 5,760,000 Assume that Cheyenne will continue to use this asset in the future. As of December 31, 2017, 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, 2017. (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 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry to record depreciation expense for 2018. (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.) Account Titles and Explanation Debit Credit SHOW LIST OF ACCOUNTS LINK TO TEXT The fair value of the equipment at December 31, 2018, is $6,120,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (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 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017 Account Titles and Explanation Debit Credit Date Dec31, 2017 Loss on Impairment $3,840,000 Accumulated Depreciation $3,840,000 (To record impairment loss on equipment) Book value of the asset cost - accumulated depreciation $10,800,000 $1,200,000 $9,600,000 The fair value of the asset = $5,760,000 Impairment amount $9,600,000 -$5,760,000 $3,840,000. Prepare the journal entry (if any) to record depreciation expense for 2018 Account Titles and Explanation Debit Credit Date Dec31, 2018 Depreciation expense $1,152,000 Accumulated depreciation- equipment $1,152,000 (To record depreciation expense on the equipment) Depreciation expense New book value/ remaining useful life $5,760,000 /5 $1,152,000

The fair value of the equipment at December 31, 2018 is $6,120,000. Prepare the journal entry (if any) necessary to record this increase in fair value. Account Titles and Explanation Debit Credit Date Dec31, 2018 No Entry $0 No Entry $0 (To record depreciation expense on the equipment) Under US GAAP, the reversal of impairment is not allowed. Therefore no adjustment is made to the assetvalue for the subsequent increase in the fair value of the asset.