Question

Presented below is information related to equipment owned by Novak Company at December 31, 2020.

Cost		$11,250,000
Accumulated depreciation to date		1,250,000
Expected future net cash flows		8,750,000
Fair value		6,000,000

Novak intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $25,000. 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

Prepare the journal entry (if any) 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

The asset was not sold by December 31, 2021. The fair value of the equipment on that date is $6,625,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $25,000. (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	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
Account Titles and Explanation	Debit	Credit
Loss on impairment	4025000
Accumulated depreciation-Equipment		4025000
b
Account Titles and Explanation	Debit	Credit
No entry	0
No entry		0
c
Account Titles and Explanation	Debit	Credit
Accumulated depreciation-Equipment	625000
Recovery of loss on Impairment		625000
Workings:
Cost	11250000
Less: Accumulated depreciation	1250000
Carrying Amount	10000000
Less:Fair value, net of disposal costs	5975000		=6000000-25000
Loss on impairment	4025000
No depreciation is recorded on assets intended to be disposed off
Fair value, net of disposal costs, Revised	6600000		=6625000-25000
Less: Fair value, net of disposal costs	5975000		=6000000-25000
Recovery of loss on Impairment	625000