Question

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in lanuary 2016 for $10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017 new technology was introduced that would accelerate the obsolescence of Roland's equipment. Roland's controller estimates that expected future net cash flows on the equipment will be $6,300,000 and that the fair value of the equipment is $5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straight-line depreciation. Your answer is partially correct. Try again. Prepare the jounal entry (if any) to record the impairment at December 31, 2017. (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.) Date Account Titles and Explanation Debit Credit Dec. 31 Loss on Impairment Your answer is incorrect. Try again. Prepare the jaunal entry for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $5,900,000. (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 Your answer is incorrect. Try again. Prepare the jaunal entry (if any) to record the impairment at December 31, 2017 and for the equipment at Decenber 31, 2018, assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018. (Ifno entry is required, select "No entryfor the account titles and enter o for the amounts. Credit account titles are automatically Indented when amount is entered. Do not Indent manually.) Date Account Tides and Explanation Debit Credit 12/31/17 12/31/18

Answer 1

Answer:(a) Carrying value of asset: $10,000,000 - $2,500,000 = $7,500,000.

($10,000,000 ÷ 8) x 2 = $2,500,000

Future cash flows $6,300,000

Carrying value $7,500,000

Impairment entry:

Loss on Impairment A/C Dr. $1,900,000

       To Accumulated Depreciation A/C    $ 1,900,000

(7,500,000 - 5,600,000 = 1,900,000)

(b) Depreciation Expense A/C Dr. $ 1,400,000

            To Accumulated Depreciation A/C $ 1,400,000

($5600000/4=$1400000)

(c ) No depreciation is recorded on impaired assets to be disposed of.

Recovery of impairment losses are recorded.

Loss on Impairment A/c Dr. $1,900,000

       To Accumulated Depreciation A/C    $ 1,900,000

12/31/2018 Accumulated Depreciation A/C Dr. $ 300,000

To Recovery of Impairment Loss A/C $ 300,000