Question

Cost		$10,980,000
Accumulated depreciation to date		1,220,000
Expected future net cash flows		8,540,000
Fair value		5,856,000

Assume that Blue will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 5 years.

Partially correct answer iconYour answer is partially correct.

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.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2017	enter a debit amount	enter a credit amount

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List of Accounts

  

  

Partially correct answer iconYour answer is partially correct.

Prepare the journal entry 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.)

Account Titles and Explanation	Debit	Credit
enter an account title	enter a debit amount	enter a credit amount
enter an account title	enter a debit amount	enter a credit amount

eTextbook and Media

List of Accounts

  

  

Partially correct answer iconYour answer is partially correct.

The fair value of the equipment at December 31, 2021, is $6,222,000. Prepare the journal entry (if any) necessary to record this increase in fair value. (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	enter an account title to record the transaction on December 31, 2018	enter a debit amount	enter a credit amount
	enter an account title to record the transaction on December 31, 2018	enter a debit amount	enter a credit amount

Answer 1

1)

An asset is said to be impaired when its Carrying value is higher than its recoverable amount.

Recoverable amount is the higher of Fair value and value in use of the asset

So as per the question

Cost of the asset= $10980000

Accumulated depreciation= $1220000

So, Carrying value of asset at 31 december 2020= Cost of the asset - Accumulated depreciation = $10980000 - $1220000= $9760000

Value in use or expected future net cash inflows = $8540000

Fair value = $5856000

So Recoverable amount = Higher of fair value or Value in use = Value in use = $8540000

Since the Carrying value of asset is higher than the recoverable amount the asset has been impaired

Impairment loss = Carrying value of asset - Value in use = $9760000 - $8540000= $1220000

• So to record the journal entry The entry will be

Date	Accounts	Debit	Credit
31 dec 2020	Impairment loss	$1220000
	Asset account(To record the asset impaired)		$1220000

The impairment loss is debited as it is an expense and should be treated as the same way as a revaluation decrease so it is therefore debited

The asset is credited as due to the impairment the value of asset have decreased, So decrease in asset value is credited

2)

So the new Carrying value of the asset = Carrying value of asset at 31 dec 2020 - Impairment loss = $9760000 - $1220000= $8540000

Remaining useful life = 5 years

Depreciation expense for the year ended 31 dec 2021= Asset's carrying value/Remaining useful life = $8540000/5 years = $1708000

So to record the depreciation expense the journal entry will be

Date	Account	Debit	Credit
31 dec 2021	Depreciation expense	$1708000
	Asset account(To record the depreciation)		$1708000

Depreciation is debited as it is an expense and expenses are debited

The asset account is credited so as to reduce the asset to reflect the depreciation.A reduction in asset is credited

3)

The carrying value of asset at 31 dec 2021 = Carrying value of asset at 31 dec 2020 - depreciation expense for the year 31 dec 2021 = $8540000 - $1708000= $6832000

The fair value of the asset at december 31 2021 = $6222000

So as the carrying value(Value in use) is higher than the fair value No entry is required for the increase in fair value.

Date	Accounts	Debit	Credit
31 dec 2021	Asset( No entry)	$0
	Revaluation gain(No entry)		$0

The normal entry for revaluation gain is debit asset and credit revaluation gain as revaluation gain is an income and increase in asset is debited, But since the fair value is lower than the carrying value No entry is required for this .