Question

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.)

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