Question

Presented below is information related to equipment owned by Cullumber Company at December 31, 2017.

Cost		$10,890,000
Accumulated depreciation to date		1,210,000
Expected future net cash flows		8,470,000
Fair value		5,808,000

Cullumber intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $24,200. As of December 31, 2017, the equipment has a remaining useful life of 4 years.

a. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (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.)
b. Prepare the journal entry (if any) to record depreciation expense for 2018. (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.)

c. The asset was not sold by December 31, 2018. The fair value of the equipment on that date is $6,413,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $24,200. (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.)

Answer 1

a
Loss on impairment	3896200
Accumulated depreciation-Equipment		3896200
b
NO entry	0
NO entry		0
c
Accumulated depreciation-Equipment	605000
Recovery of loss on Impairment		605000
Workings:
Cost	10890000
Less: Accumulated depreciation	1210000
Carrying Amount	9680000
Less: Fair value, net of disposal costs	5783800	=5808000-24200
Loss on impairment	3896200
No depreciation is recorded on assets intended to be sold
Fair value, net of disposal costs, revised	6388800	=6413000-24200
Less: Fair value, net of disposal costs, before	5783800	=5808000-24200
Recovery of loss on Impairment	605000