Question

E11.16 (L03) (Impairment) Presented below is information related to equipment owned by Suarez Company at December 31, 2020. Cost $9,000,000 Accumulated depreciation to date 1,000,000 Expected future net cash flows 7,000,000 Fair value 4,800,000 Assume that Suarez will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 4 years Instructions a. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020. b. Prepare the journal entry to record depreciation expense for 2021. c. The fair value of the equipment at December 31, 2021, is 55,100.000. Prepare the journal entry (if any) necessary to record this increase in fair value, E11.17 (LO 3) (Impairment) Assume the same information as E11.16. cxcept that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000, Instructions a. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020 b. Prepare the journal entry (if any) to record depreciation expense for 2021. c. The asset was not sold by December 31, 2021 The fair value of the equipment of that date is $5,900.000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still S20.000.

Answer 1

E 11-17:

a.) Cost $ 900,000 Accumulated depreciatior $ (100,000) Carrying amount $ 800,000 Fair value $ 480,000 Loss on impairment $ 320,000 $ 320,000 Loss on impairment Accumulated depreciation (To record the impairment loss) $ 320,000 b.) Net carrying amount Useful life Depreciation $ 4,800,000 4 Years $ 1,200,000 $ 1,200,000 Depreciation expenses Accumulated depreciation (To record the depreciation expenses) $ 1,200,000 c.) No entry is required, because restoration of any impairment loss is not permitted.

E 11-16:

(a)

December 31, 2020
Loss on Impairment ............................................. 3,200,000*
Accumulated Depreciation—Equipment .. 3,200,000

Cost $9,000,000
Less: Accumulated depreciation 1,000,000
Carrying amount 8,000,000
Less: Fair value 4,800,000
Loss on impairment $3,200,000*

Expected undiscounted cash flows ($7,000,000) < carrying value ($8,000,000).

(b)

December 31, 2021
Depreciation Expense ......................................... 1,200,000
Accumulated Depreciation—Equipment .. 1,200,000

New carrying amount $4,800,000
Useful life ÷ 4 years
Depreciation per year $1,200,000

(c)

No entry necessary. Restoration of any impairment loss is not permitted.