Question

Presented below is information related to equipment owned by Sheridan Company at December 31, 2017. Cost $9,720,000 Accumulated depreciation to date 1,080,000 Expected future net cash flows 7,560,000 Fair value 5,184,000 Assume that Sheridan will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 5 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 $5,508,000. 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

Recoverable Amount = Higher of Fair Value or Estimated Future Cash Flows
Recoverable Amount = Higher of 5184000 or 7560000 i.e 7560000
WDV of the Asset on 31st Dec 2017
Cost	9720000
Less- Acc Depn	1080000
WDV	8640000
Impairment = WDV - Recoverable Amount = 8640000-7560000=1080000
Depreciation for 2018 = (8640000-1080000)/5Years = 1512000
a.Impairment entry
Impairment Loss	1080000
To Accumulated Impairment loss/Equipment		1080000
b.Depreciation Entry
Depreciation	1512000
To Accumulated Depreciation		1512000
c.Increase in Fair Value
No entry Required since future cash flows value is more than fair value