Question

Presented below is information related to equipment owned by Vaughn Company at December 31, 2020. Cost $10,350,000 Accumulated depreciation to date 1,150,000 Expected future net cash flows 8,050,000 Fair value 5,520,000 Assume that Vaughn will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 4 years.

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 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO VIDEO

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 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO VIDEO

The fair value of the equipment at December 31, 2021, is $5,865,000. 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

a
Date	Account Titles and Explanation	Debit	Credit
Dec. 31	Loss on impairment	3680000
	Accumulated depreciation-Equipment		3680000
b
	Account Titles and Explanation	Debit	Credit
	Depreciation expense	1380000
	Accumulated depreciation-Equipment		1380000
c
Date	Account Titles and Explanation	Debit	Credit
Dec. 31	No entry	0
	No entry		0
	Workings:
	Cost	10350000
	Less: Accumulated depreciation	1150000
	Carrying Amount	9200000
	Less: Fair value	5520000
	Loss on impairment	3680000
	Revised Carrying amount	5520000
	Divide by Remaining life	4
	Depreciation expense for 2021	1380000
	Restoration of impairment loss is not permitted. No entry is required to record increase in fair value.