Question

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

Cost		$9,630,000
Accumulated depreciation to date		1,070,000
Expected future net cash flows		7,490,000
Fair value		5,136,000

Assume that Sheridan will continue to use this asset in the future. 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

eTextbook and Media

List of Accounts

  

  

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

eTextbook and Media

List of Accounts

  

  

The fair value of the equipment at December 31, 2021, is $5,457,000. 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

Answer
a
	Debit	Credit
Loss on impairment	$      3,424,000
Accumulated depreciation-Equipment		$      3,424,000
b
	Debit	Credit
Depreciation expense	$      1,284,000
Accumulated depreciation-Equipment		$      1,284,000
c
	Debit	Credit
No entry	$                   -
No entry		$                   -
Workings:
Cost	$      9,630,000
Less: Accumulated depreciation	$      1,070,000
Carrying Amount	$      8,560,000
Less: Fair value	$      5,136,000
Loss on impairment	$      3,424,000
Revised Carrying amount	$      5,136,000
Divide by Remaining life	4
Depreciation expense for 2021	$      1,284,000
Restoration of impairment loss is not permitted. No entry is required to record increase in fair value.