Question

Exercise 11-16 Presented below is information related to equipment owned by Buffalo Company at December 31, 2017. Cost $9,900,000 Accumulated depreciation to date 1,100,000 Expected future net cash flows 7,700,000 Fair value 5,280,000 Assume that Buffalo will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 5 years.

DEC 31. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.

Prepare the journal entry to record depreciation expense for 2018.

DEC 31. The fair value of the equipment at December 31, 2018, is $5,610,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

Answer 1

1
Dec. 31	Loss on Impairment	3520000
	Accumulated Depreciation—Equipment		3520000
2
	Depreciation Expense	1056000
	Accumulated Depreciation—Equipment		1056000
3
Dec. 31	No entry	0
	No entry		0
	Workings:
	Cost	9900000
	Less: Accumulated depreciation to date	1100000
	Carrying value	8800000
	Less: Fair value	-5280000
	Loss on Impairment	3520000
	Revised Carrying value	5280000
	Remaining useful life (years)	5
	Depreciation Expense	1056000
	Restoration of impairment loss is not permitted, for assets intended to be used in future
	No entry is required for increase in fair value