In: Accounting
Nash Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $10,200,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Nash’s equipment. Nash’s controller estimates that expected future net cash flows on the equipment will be $6,426,000 and that the fair value of the equipment is $5,712,000. Nash intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Nash uses straight-line depreciation.
Prepare the journal entry (if any) to record the impairment 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.)
Date |
Account Titles and Explanation |
Debit |
Credit |
Dec. 31 | |||
Prepare the journal entry for the equipment at December 31, 2021. The fair value of the equipment at December 31, 2021, is estimated to be $6,018,000. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date |
Account Titles and Explanation |
Debit |
Credit |
Dec. 31 | |||
Prepare the journal entry (if any) to record the impairment at December 31, 2020 and for the equipment at December 31, 2021, assuming that Nash intends to dispose of the equipment and that it has not been disposed of as of December 31, 2021. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Date |
Account Titles and Explanation |
Debit |
Credit |
12/31/20 |
|||
12/31/21 |
Part-A:
Date | Account Titles & Explanation | Debit($) | Credit($) |
Dec 31,2020 | Impairment Loss | 1224000 | |
Accumulated Impairment loss | 1224000 | ||
(To record Impairment on Equipment) |
Part - B:
Date | Account Titles & Explanation | Debit($) | Credit($) |
Dec 31,2021 | Accumlated Impairment Loss | 1198500 | |
Impairment loss | 1198500 | ||
(To record Reversal of Impairment loss) |
Part C:
Date | Account Titles & Explanation | Debit($) | Credit($) |
Dec 31,2020 | Impairment Loss | 1224000 | |
Accumulated Impairment loss | 1224000 | ||
(To record Impairment on Equipment) |
The Carrying amount of the Equipment as on Dec 31,2021 = 7650000-1224000 = 6426000.
No Depreciation to be recorded for the year Dec 31,2021 as the Asset was classified as held for sale
Whenever the asset is classified as held for sale, it has to be carried at carrying amount or fair value less cost to sell,whichever is lower.