Question

Ayayai Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $11,600,000 and had an estimated useful life of  8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Ayayai’s equipment. Ayayai’s controller estimates that expected future net cash flows on the equipment will be $ 7,308,000 and that the fair value of the equipment is $ 6,496,000. Ayayai intends to continue using the equipment, but it is estimated that the remaining useful life is  4 years. Ayayai uses straight-line depreciation.

Prepare the journal entry (if any) to record the impairment at December 31, 2017. (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, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $ 6,844,000. (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, 2017 and for the equipment at December 31, 2018, assuming that Ayayai intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018. (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
12/31/17
12/31/18

Answer 1

Solution:-

Prepare the journal entry (if any) to record the impairment at December 31, 2017:-

Date	Account titles and explanation	Debit	Credit
Dec. 31	Loss on impairment	2,204,000
	Accumulated Depreciation		2,204,000

Explanation:-

Carrying value of asset: $11,600,000 – $2,900,000* = $8,700,000.

*($11,600,000 ÷ 8) X 2

loss of impairment math $8,700,000 – $6,496,000

Prepare the journal entry for the equipment at December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be $ 6,844,000:-

Date	Account titles and explanation	Debit	Credit
Dec. 31	Depreciation expenses	1,711,000
	Accumulated depreciation		1,711,000

Explanation:-

6,844,000 / 4

Prepare the journal entry (if any) to record the impairment at December 31, 2017 and for the equipment at December 31, 2018, assuming that Ayayai intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018:-

Date	Account titles and explanation	Debit	Credit
12/31/17	Loss on impairment	2,204,000
	Accumulated depreciation		2,204,000
12/31/18	Accumulated depreciation	348,000
	Recovery of impairment loss		348,000

Explanation:-

6,844,000 - 6,496,000