Question

Exercise 11-16

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

Cost		$10,620,000
Accumulated depreciation to date		1,180,000
Expected future net cash flows		8,260,000
Fair value		5,664,000

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

A.) 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

B.) 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

C.) The fair value of the equipment at December 31, 2021, is $6,018,000. 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	3776000
	Accumulated depreciation-Equipment		3776000
	b
	Account Titles and Explanation	Debit	Credit
	Depreciation expense	1132800
	Accumulated depreciation-Equipment		1132800
	c
Date	Account Titles and Explanation	Debit	Credit
Dec. 31	No entry	0
	No entry		0
	Workings:
	Cost	10620000
	Less: Accumulated depreciation	1180000
	Carrying Amount	9440000
	Less: Fair value	5664000
	Loss on impairment	3776000
	Revised Carrying amount	5664000
	Divide by Remaining life	5
	Depreciation expense for 2021	1132800
	Restoration of impairment loss is not permitted. No entry is required to record increase in fair value.