Question

Presented below is information related to equipment owned by Wildhorse Company at December 31, 2020. Cost $10,620,000 Accumulated depreciation to date 1,180,000 Expected future net cash flows 8,260,000 Fair value 5,664,000 Assume that Wildhorse will continue to use this asset in the future. 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. (If no entry is required, select "No entry" for the account titles and enter Ofor 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 eTextbook and Media List of Accounts Prepare the journal entry to record depreciation expense for 2021. (If no entry is required, select "No entry" for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit eTextbook and Media List of Accounts The fair value of the equipment at December 31, 2021, is $6,018,000. 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 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

Answer 1

Answer a. To record the impairment of the assetat December 31, 2020

Date	Accounts Titles & Explanation	Debit	Credit
Dec 31.	Loss on impairment	3,776,000
	Accumulated depreciation		3,776,000

Explanation:

Carrying amount Dec 31 = $10,620,000 - $1,180,000 = $9,440,000

Expected future net cash flows (given) = $8,260,000

Since carrying amount of asset is more than expected future net cash flows, the asset is said to be impaired

Loss on impairment = Carrying amount of asset - Fair value

= $9,440,000 - $5,664,000 = $3,776,000.

Answer b. To record the depreciation expense for 2021

Date	Accounts Titles & Explanation	Debit	Credit
Dec 31.	Depreciation	1,132,800
	Accumulated depreciation		1,132,800

Explanation:

New carrying amount of asset = Fair value = $5,664,000

Remaining useful life = 5 years (given)

Depreciation for 2021 = $5,664,000 / 5 years = $1,132,800

Answer b. To record the increase in fair value

Date	Accounts Titles & Explanation	Debit	Credit
Dec 31	No Entry	0
	No Entry		0

Explanation:

As per GAAP, once the loss on impairment is recorded , the value of asset can not be increased due to increase in its fair value.