Question

Presented below is information related to equipment owned by Waterway Company at December 31, 2020.

Cost		$10,710,000
Accumulated depreciation to date		1,190,000
Expected future net cash flows		8,330,000
Fair value		5,712,000

Waterway intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $23,800. As of December 31, 2020, the equipment has a remaining useful life of 4 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 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	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount

Prepare the journal entry (if any) to record depreciation expense for 2021. (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.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

  

The asset was not sold by December 31, 2021. The fair value of the equipment on that date is $6,307,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $23,800. (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	enter an account title to record the transaction on December 31, 2018	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2018	enter a debit amount	enter a credit amount

Answer 1

a
Particulars	Debit ($)	Credit ($)
Loss on impairment	3831800
Accumulated depreciation-Equipment		3831800
b
No entry	0
No entry		0
No depreciation is recorded on assets intended to be disposed off
c
Accumulated depreciation-Equipment	595000
Recovery of loss on Impairment		595000
Workings:
Cost	10710000
Less: Accumulated depreciation	1190000
Carrying Amount	9520000
Less:Fair value, net of disposal costs (5712000-23800)	5688200
Loss on impairment	3831800
Fair value, net of disposal costs, Revised (6307000-23800)	6283200
Less:Fair value, net of disposal costs	5688200
Recovery of loss on Impairment	595000