Question

Presented below is information related to equipment owned by Nash Company at December 31, 2017. Cost $9,540,000 Accumulated depreciation to date 1,060,000 Expected future net cash flows 7,420,000 Fair value 5,088,000 Assume that Nash will continue to use this asset in the future. 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. (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 Show List of Accounts Link to Text Prepare the journal entry to record depreciation expense for 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.) Account Titles and Explanation Debit Credit Show List of Accounts Link to Text The fair value of the equipment at December 31, 2018, is $5,406,000. 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 Click if you would like to Show Work for this question: Open Show Work

Answer 1

Cost	$ 9,540,000.00
Less: Accumulated depreciation	$ 1,060,000.00
Net Book value	$ 8,480,000.00
Expected future net cash flows	$ 7,420,000.00
Fair value	$ 5,088,000.00
remaining useful life	5 Years

Since the Undiscounted future cash flow of the assets is less than the carrying value of the assets, this indicates the impairment exists.

Calculation of Impairment:

Net Book value	$ 8,480,000.00
Fair value	$ 5,088,000.00
Impairement Loss	$ 3,392,000.00

1.

Date	Account Description	Debit	Credit
31-Dec-17	Impairement Loss	$ 3,392,000.00
	Accumulated Impairement Loss		$ 3,392,000.00
	(Being the assets impaired)

2.

Revised Book Value	$ 5,088,000.00
remaining useful life	5 Years
Depreciation(5088000/5)	$ 1,017,600.00

Date	Account Description	Debit	Credit
31-Dec-18	Depreciation Expenses	$ 1,017,600.00
	Accumulated Depreciation		$ 1,017,600.00
	(Being Depreciation recorded)

3. Increase in Fair Value of assets is not allowed as per GAAP. So no entry required for an increase in the value of the assets.

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