Question

Presented below is information related to equipment owned by Wildhorse Company at December 31, 2020. Cost...

Presented below is information related to equipment owned by Wildhorse Company at December 31, 2020.

Cost $10,620,000
Accumulated depreciation to date 1,180,000
Expected future net cash flows 8,260,000
Fair value 5,664,000


Wildhorse intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $23,600. As of December 31, 2020, 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, 2020. (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 2021. (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, 2021. The fair value of the equipment on that date is $6,254,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $23,600. (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
Account Titles and Explanation Debit Credit
Loss on impairment $            37,99,600
        Accumulated depreciation-Equipment $            37,99,600
b
Account Titles and Explanation Debit Credit
No entry $                        -  
      No entry $                        -  
No depreciation is recorded on assets intended to be written off
c
Account Titles and Explanation Debit Credit
Accumulated depreciation-Equipment $              5,90,000
      Recovery of loss on Impairment $              5,90,000
Workings:
a.
Cost $         1,06,20,000
Less: Accumulated depreciation $            11,80,000
Carrying Amount $            94,40,000
Less:Fair value, net of disposal costs $            56,40,400 (5654000-23600)
Loss on impairment $            37,99,600
c.
Fair value, net of disposal costs, Revised $            62,30,400 (6254000-23600)
Less: Fair value, net of disposal costs $            56,40,400 (5654000-23600)
Recovery of loss on Impairment $              5,90,000
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