Question

Shown below are the T accounts relating to equipment that was purchased for cash by a company on the first day of the current year. The equipment was depreciated on a straight-line basis with an estimated useful life of 10 years and a residual value of $360. Part of the equipment was sold on the last day of the current year for cash proceeds while the remaining equipment that was not sold became impaired.

Reconstruct the journal entries to record the following and derive the missing amounts:

(a)		Purchase of equipment on January 1. What was the cash paid?
(b)		Depreciation recorded on December 31. What was the depreciation expense?
(c)		Sale of part of the equipment on December 31. What was the gain on disposal?
(d)		Partial impairment loss on the remaining equipment on December 31. What was the impairment loss?

Cash Jan. 1 . 2,460a) Dec. 31 994 Equipment Jan. 1 2,460 Dec. 31 984 Accumulated Depreciation Equipment Dec. 31 Dec. 31 84 Dec. 31 56 Depreciation Expense 210 Dec. 31 x ........ 210 Gain on Disposal Dec. 31x.. ........ Impairment Loss .... Dec. 31

Answer 1

DATE	PARTICULAR	DEBIT ($)	CREDIT ($)
Jan 01	Equipment	2,460
	Cash		2,460
Dec 31	Depreciation Expense	210
	Equipment		210
Dec 31	Cash	994
	Equipment		984
	Gain on Sale of equipment		10
Dec 31	Impairment Loss
	Equipment

WORKING NOTES:

(1) Cost of machine = $2,460

Thus, annual depreciation = (2460 - 360) / 10

   = $210.

(2) Cost of machine sold = $984

Gain in sale = $10   (can be seen as difference between cash proceeds and equipment sale)

(3) Carrying value of asset = $1,420

Market value of the asset = $

Thus, Impairment loss = $