Question

Accounting

(a) Peppers Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $180,000. The machinery has a fair value of $140,000. Record Peppers’ journal entry to recognize any loss that needs to be recognized for impairment.

(b) Dillman Corporation owns machinery with a book value of $190,000. It is estimated that the machinery will generate future cash flows of $195,000. The machinery has a fair value of $150,000. Record Dillman’s journal entry to recognize any loss that needs to be recognized for impairment.

(c) Assume the company had used double-declining balance depreciation during 2017 and 2018. At the beginning of 2019, the company determined that due to a revolutionary advance in snow-making technology the equipment would be useful to the company for only two more years, 2019 and 2020. A revised salvage value is estimated at $120,000. Record the adjusting entry for depreciation for 2019.

Answer 1

a)

Book value of the machinery	$190,000
Less: Fair value of the machinery	($140,000)
Impairment Loss	$50,000

Journal Entry:

Account Titles and Explanations	Debit	Credit
Impairment Loss	$50,000
Machinery		$50,000
(To record the impairment loss on the machinery)

b)

Book value of the machinery	$190,000
Less: Fair value of the machinery	($150,000)
Impairment Loss	$40,000

Journal Entry:

Account Titles and Explanations	Debit	Credit
Impairment Loss	$40,000
Machinery		$40,000
(To record the impairment loss on the machinery)

c)

Question C is incomplete as the information about previous method used for depreciation should be given in order to calculate the adjusting entry for 2019 depreciation.

Note:

As per HOMEWORKLIB RULES, the first question should be answered but i have answered the first two questions but the third question is incomplete, hence, i have not answered it.