Question

Presented below is information related to equipment owned by Waterway Company at December 31, 2017.

Cost		$10,800,000
Accumulated depreciation to date		1,200,000
Expected future net cash flows		8,400,000
Fair value		5,760,000

Waterway intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $24,000. As of December 31, 2017, the equipment has a remaining useful life of 5 years.

Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.

Prepare the journal entry (if any) to record depreciation expense for 2018.

The asset was not sold by December 31, 2018. The fair value of the equipment on that date is $6,360,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $24,000.

Answer 1

a
	Debit	Credit
Loss on impairment	3864000
Accumulated depreciation-Equipment		3864000
b
No entry	0
No entry		0
c
Accumulated depreciation-Equipment	600000
Recovery of loss on Impairment		600000
Workings:
Cost	10800000
Less: Accumulated depreciation	1200000
Carrying Amount	9600000
Less:Fair value, net of disposal costs	5736000		=5760000-24000
Loss on impairment	3864000
No depreciation is recorded on assets intended to be disposed off
Fair value, net of disposal costs, Revised	6336000		=6360000-24000
Less:Fair value, net of disposal costs	5736000
Recovery of loss on Impairment	600000