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Impairment

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16. (Impairment) Presented below is information related to equipment owned by Suarez
Company at December 31, 2004.
Cost $9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash flows 7,000,000
Fair value 4,800,000
Assume that Suarez will continue to use this asset in the future. As of December 31,
2004, the equipment has a remaining useful life of 4 years.

Instructions:
a. Prepare the journal entry (if any) to record the impairment of the asset at December
31, 2004.

b. Prepare the journal entry to record depreciation expense for 2005.

c. The fair value of the equipment at December 31, 2005, is $5,100,000. Prepare the
journal entry (if any) necessary to record this increase in fair value.

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Solution Summary

The solution explains how to determine if an asset is impaired and the related journal entry

Solution Preview

a. Prepare the journal entry (if any) to record the impairment of the asset at December
31, 2004.

The book value of the asset is 8,000,000 ( the cost less the accumulated depreciation). The fair value of the asset is 4,800,000. Therefore there has been an impairment of ...

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