Question

resented below is information related to equipment owned by Pearl Company at December 31, 2017. Cost...

resented below is information related to equipment owned by Pearl Company at December 31, 2017.

Cost $10,170,000
Accumulated depreciation to date 1,130,000
Expected future net cash flows 7,910,000
Fair value 5,424,000


Assume that Pearl will continue to use this asset in the future. 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 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 fair value of the equipment at December 31, 2018, is $5,763,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (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.)

Homework Answers

Answer #1
a
Loss on impairment 3616000
         Accumulated depreciation-Equipment 3616000
b
Depreciation expense 1356000
         Accumulated depreciation-Equipment 1356000
c
No entry 0
        No entry 0
Workings:
Cost 10170000
Less: Accumulated depreciation 1130000
Carrying Amount 9040000
Less: Fair value 5424000
Loss on impairment 3616000
Carrying value of Equipment 5424000
Remaining useful life 4
Depreciation expense 1356000
No entry is necessary to record the increase in fair value
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