Question

Cullumber Company manufactures routers used in industrial modems. On May 15, 2017, Cullumber purchased a precision welding machine at a retail price of $118,800. Cullumber paid 5% sales tax on this purchase and hired a contractor to build a “clean” platform enclosure for the machine for $9,000. Cullumber estimates the machine will have a 5-year useful life, with a salvage value of $9,900 at the end of 5 years. Cullumber uses straight-line depreciation and employs the “half-year” convention in accounting for partial-year depreciation. Cullumber’s fiscal year ends on December 31. At what amount should Cullumber record the acquisition cost of the machine? Acquisition cost of the machine $ Show List of Accounts Link to Text Link to Text How much depreciation expense should Cullumber record in 2017 and in 2018? Depreciation expense 2017 $ Depreciation expense 2018 $ Show List of Accounts Link to Text Link to Text At what amount will the machine be reported in Cullumber’s balance sheet at December 31, 2018? Amount to be reported in balance sheet $ Show List of Accounts Link to Text Link to Text During 2019, Cullumber’s circuit board business is experiencing significant competition from companies with more advanced low-heat circuit boards. As a result, at June 30, 2019, Cullumber conducts an impairment evaluation of the stamping machine purchased in 2017. Cullumber determines that undiscounted future cash flows for the machine are estimated to be $74,400 and the fair value of the machine, based on prices in the re-sale market, to be $64,000. Prepare the journal entry to record an impairment, if any, on the welding machine. (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

Answer 1

Solution 1:

Acquistion cost of new machine = $118,800 + $118,800 * 5% + $9,000 = $133,740

Solution 2:

Salvage value of machine = $9,900

Depreciable cost = $133,740 - $9,900 = $123,840

Life of asset = 5 years

Depreciation expense 2017 = $123,840 /5 * 6/12 = $12,384

Depreciation expense 2018 = $123,840 / 5 = $24,768

Solution 3:

Machine to be reported in balance sheet at 31 December 2018 = $133,740 - $12,384 - $24,768 = $96,588

Solution 4:

Recoverable amount of machine = Higher of fair value and value in use of machine = $74,400

Carrying value of machine = $96,588

Impairment loss = $96,588 - $74,400 = $22,188

Journal Entries - Cullumber Company
Date	Particulars	Debit	Credit
30-Jun-19	Impairment loss Dr	$22,188.00
	To Accumulated impairment losses		$22,188.00
	(To record loss on impairment)