Question

Presented below is information related to equipment owned by Bonita Company at December 31, 2020. Cost $9,810,000 Accumulated depreciation to date 1,090,000 Expected future net cash flows 7,630,000 Fair value 5,232,000 Bonita intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $21,800. As of December 31, 2020, the equipment has a remaining useful life of 4 years. Partially correct answer iconYour answer is partially correct. 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 Loss on Impairment enter a debit amount 1090000 enter a credit amount enter an account title to record the transaction on December 31, 2017 Accumulated Depreciation-Equipment enter a debit amount enter a credit amount 1090000 eTextbook and Media List of Accounts Correct answer iconYour answer is correct. Prepare the journal entry (if any) 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 No Entry enter a debit amount 0 enter a credit amount enter an account title No Entry enter a debit amount enter a credit amount 0 eTextbook and Media List of Accounts Partially correct answer iconYour answer is partially correct. The asset was not sold by December 31, 2021. The fair value of the equipment on that date is $5,777,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $21,800. (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.)

Answer 1

a
Account Titles and Explanation	Debit	Credit
Loss on impairment	3509800
Accumulated depreciation-Equipment		3509800
b
Account Titles and Explanation	Debit	Credit
No entry	0
No entry		0
c
Account Titles and Explanation	Debit	Credit
Accumulated depreciation-Equipment	545000
Recovery of loss on Impairment		545000

Workings:
Cost	9810000
Less: Accumulated depreciation	1090000
Carrying Amount	8720000
Less: Fair value, net of disposal costs	5210200		=5232000-21800
Loss on impairment	3509800
No depreciation is recorded on assets intended to be disposed off
Fair value, net of disposal costs, Revised	5755200		=5777000-21800
Less: Fair value, net of disposal costs	5210200		=5232000-21800
Recovery of loss on Impairment	545000