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The management of Larkspur Inc., a small private company that uses the cost recovery impairment model,...

The management of Larkspur Inc., a small private company that uses the cost recovery impairment model, was discussing whether certain equipment should be written down as a charge to current operations because of obsolescence. The assets had a cost of $950,000, and depreciation of $390,000 had been taken to December 31, 2017. On December 31, 2017, management projected the undiscounted future net cash flows from this equipment to be $350,000, and its fair value to be $260,000. The company intends to use this equipment in the future.

Prepare the journal entry, if any, to record the impairment at December 31, 2017. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2017

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At December 31, 2018, the equipment’s fair value increased to $320,000. Prepare the journal entry, if any, to record this increase in fair value. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2018

Show List of Accounts

Assume instead that as of December 31, 2017, the equipment was expected to have undiscounted future net cash flows of $610,000, and that its fair value was estimated to be $490,000. Prepare the journal entry to record the impairment at December 31, 2017, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

December 31, 2017

Show List of Accounts
Assume instead that as of December 31, 2017, the equipment was expected to have undiscounted future net cash flows of $46,000 per year for each of the next 10 years, and that there is no active market for the equipment. Luis Inc. uses a 10% discount rate in its cash flow estimates. Prepare the journal entry to record impairment at December 31, 2017, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 0 decimal places, e.g. 1,251.)

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Date

Account Titles and Explanation

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Expert Solution

ekkarill92 answered 2 years ago
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