Question

Blossom Company uses special strapping equipment in its packaging business. The equipment was purchased in January...

Blossom Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $12,300,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Blossom’s equipment. Blossom’s controller estimates that expected future net cash flows on the equipment will be $7,749,000 and that the fair value of the equipment is $6,888,000. Blossom intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Blossom uses straight-line depreciation. (a) Prepare the journal entry (if any) to record the impairment 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

Homework Answers

Answer #1
Answer
Date Account Titles and Explanation Debit Credit
Dec. 31

Loss on impairment (book value - Fair value)     

($ 92,25,000 - $ 68,88,000)

$ 23,37,000
Accumulated depreciation $ 23,37,000
(To record Loss on impairment)

a. Book value of the equipment at December 31, 2020

= Cost - accumulated Depreciation

= $ 1,23,00,000 - $ 30,75,000
= $ 92,25,000

b. Accumulated Depreciation for two years

= (Cost - scrap value) / life * 2 years

= (($ 1,23,00,000 - 0) / 8) * 2
= $ 15,37,500 * 2
= $ 30,75,000
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