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Impairment Loss On July 1, 2015, Karen Company purchased equipment for $325,000; the estimated useful life...

Impairment Loss

On July 1, 2015, Karen Company purchased equipment for $325,000; the estimated useful life was 10 years and the expected salvage value was $40,000. Straight-line depreciation is used. On July 1, 2019, economic factors cause the market value of the equipment to decrease to $90,000. On this date, Karen evaluates if the equipment is impaired and estimates future cash flows relating to the use and disposal of the equipment to be $195,000.

a. Is the equipment impaired at July 1, 2019?

b. If the equipment is impaired at July 1, 2019, calculate the amount of the impairment loss.
Impairment loss = $

c. If the equipment is impaired at July 1, 2019, prepare the journal entry to record the impairment loss.

General Journal
		Debit	Credit
July 1	Answer	Answer	Answer
	Answer	Answer	Answer
	To record impairment loss on equipment.

Expert Solution

a)Depreciaion expense =[cost-salvage value]/useful life

= [325000-40000]/10

= 28500

Total accumulated depreciation (1July 2015-1July 2019) = 4 years*28500 = 114000

Book value as on 1July2019 =cost-accumulated depreciation

= 325000 -114000

= 211000

Value in use= Higher of market value or future cash flows

= 90000 or 195000

= 195000

Since Value in use is less than carrying value of asset ,Asset is impaired

b)Impairment loss =Book value -value in use

= 211000-195000

= 16000

c)

Date	Account title	Debit	credit
1 July 2019	Impairment loss	16000
	Equipment		16000

ekkarill92 answered 2 hours ago

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