Question

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

Cost       $10,080,000
Accumulated depreciation to date       1,120,000
Expected future net cash flows       7,840,000
Fair value       5,376,000

Ivanhoe intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $22,400. As of December 31, 2017, the equipment has a remaining useful life of 5 years.

  
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.)

Date  
Account Titles and Explanation
Debit
Credit
Dec. 31  

SHOW LIST OF ACCOUNTS
LINK TO TEXT

  
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.)

Account Titles and Explanation
Debit
Credit

SHOW LIST OF ACCOUNTS
LINK TO TEXT

  
The asset was not sold by December 31, 2018. The fair value of the equipment on that date is $5,936,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $22,400. (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.)

Date  
Account Titles and Explanation
Debit
Credit
Dec. 31  

Answer 1

1
		Debit	Credit
Dec.31	Loss on impairment	3606400
	Accumulated depreciation-Equipment		3606400
2
Dec.31	No entry	0
	No entry		0
3
Dec.31	Accumulated depreciation-Equipment	560000
	Recovery of loss on Impairment		560000
	Workings:
	For 1:
	Cost	10080000
	Less: Accumulated depreciation	1120000
	Carrying Amount	8960000
	Less: Fair value(Net of disposal costs)	5353600	=5376000-22400
	Loss on impairment	3606400
	For 3:
	Fair value(Net of disposal costs)	5913600	=5936000-22400
	Less: Carrying Amount present	5353600
	Recovery of impairment loss	560000