5. Max Inc. purchased on January 2, 2017, equipment with a cost of $10,440,000, a useful...
5. Max Inc. purchased on January 2, 2017, equipment with a cost of $10,440,000, a useful life of 10 years and no salvage value. The Company uses straight-line depreciation. At December 31, 2017 and December 31, 2018, the company determines that impairment indicators are present. The following information is available for impairment testing at each year end:
12/31/2017 12/31/2018
Fair value less cost to sell $9,315,000 $8,350,000
Value-in-use $9,350,000 $8,315,000
There is no change in the asset’s useful life or salvage value. The 2018 income statement will report (impairment loss or recovery of impairment loss) Answer ________________ of $ Answer __________________
Homework Answers
Solution :
An Impairment Loss is recognized when the carrying amount of an asset is greater than its Recoverable value.
The Recoverable value of an asset is calculated as the greater of the following
a. Fair value less cost to sell
b. Value-in-use
Calculation of annual straight line depreciation and Carrying amounts at the end of 2017 and 2018 :
As per the information given in the question we have
Original cost of equipment purchased on January 2, 2017 = $ 10,440,000
It has a useful life of 10 years and no salvage value. The Company uses straight-line depreciation.
Thus the Annual depreciation as per straight line method is
= ( Cost of the asset – Salvage value ) / Useful life
= ( $ 10,440,000 - $ 0 ) / 10
= $ 10,440,000 / 10
= $ 1,044,000
Thus we have carrying Value of the asset as on 31 December 2017 as follows
= Original cost of equipment – Annual straight line depreciation
= $ 10,440,000 - $ 1,044,000
= $ 9,396,000
Thus carrying Value of the asset as on 31 December 2017 = $ 9,396,000
Further we have carrying Value of the asset as on 31 December 2018 as follows
= Carrying value of the assets as on 31 December 2017 – Annual straight line depreciation
= $ 9,396,000 - $ 1,044,000
= $ 8,352,000
Thus carrying Value of the asset as on 31 December 2018 = $ 8,352,000
Calculation of Impairment loss for the Year 2017 :
As per the information available in the question we have
Fair value less cost to sell as on 31 December 2017 = $9,315,000
Value-in-use as on 31 December 2017 = $9,350,000
The Recoverable value of an asset is the greater of the following a. Fair value less cost to sell and b. Value-in-use
Thus the recoverable value = $ 9,350,000
The carrying amount if the asset as on 31 December, 2017 = $ 9,396,000
Since the Carrying amount of the Asset is greater than its recoverable value, the impairment loss is
= $ 9,396,000 - $ 9,350,000
= $ 46,000
Thus the Impairment loss for the Year 2017 = $ 46,000
Calculation of Impairment loss for the Year 2018 :
As per the information available in the question we have
Fair value less cost to sell as on 31 December 2018 = $ 8,350,000
Value-in-use as on 31 December 2018 = $ 8,315,000
The Recoverable value of an asset is the greater of the following a. Fair value less cost to sell and b. Value-in-use
Thus the recoverable value = $ 8,350,000
The carrying amount if the asset as on 31 December, 2018 = $ 8,352,000
Since the Carrying amount of the Asset is greater than its recoverable value, the impairment loss is
= $ 8,352,000 - $ 8,350,000
= $ 2,000
Thus the Impairment loss for the Year 2018 = $ 2,000
The 2018 income statement will report impairment loss of = $ 2,000
Add Answer to:
5. Max Inc. purchased on January 2, 2017, equipment with a cost
of $10,440,000, a useful...
The following information relates to an exchange of assets by Wharton Company. The exchange lacks commercial...
The following information relates to an exchange of assets by Wharton Company. The exchange lacks commercial substance. Old Equipment Book Value Fair Value Cash Paid Case I $75,000 $85,000 $15,000 Case II $50,000 $45,000 $7,000 For Case II, Wharton records the equipment at $ Answer on its books and gain or (loss) of $ Answer. NB. if reporting a loss, use minus sign in answer. On January 2, 2015, Deck Inc. purchased machinery with a cost of $10,440,000, a useful...
Use the following information for questions 4 and 5. On January 1, 2015, Fredrichs Inc, purchased...
Use the following information for questions 4 and 5. On January 1, 2015, Fredrichs Inc, purchased equipment with a cost of $3,060,000, a useful life! of 10 years and residual value of $60,000, The company uses straight-line depreciation. At December 31, 2016, the company determines that impairment indicators are present. The fair value less cost to sell the asset is estimated to be $2,200,000. The asset's value-in-use is estimated to be $2,165,000. There is no change in the annet's useful...
Presented below is information related to equipment owned by Pharoah Company at December 31, 2017. Cost...
Presented below is information related to equipment owned by Pharoah Company at December 31, 2017. Cost $10,440,000 Accumulated depreciation to date 1,160,000 Expected future net cash flows 8,120,000 Fair value 5,568,000 Assume that Pharoah will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 5 years. a. Prepare the journal entry to record depreciation expense for 2018. b. The fair value of the equipment at December 31, 2018,...
Sheffield Company uses special strapping equipment in its packaging business. The equipment was purchased in January...
Sheffield Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $11,700,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Sheffield’s equipment. Sheffield’s controller estimates that expected future net cash flows on the equipment will be $7,371,000 and that the fair value of the equipment is $6,552,000. Sheffield intends to continue using the equipment,...
Sage Company uses special strapping equipment in its packaging business. The equipment was purchased in January...
Sage Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $12,300,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Sage’s equipment. Sage’s controller estimates that expected future net cash flows on the equipment will be $ 7,749,000 and that the fair value of the equipment is $ 6,888,000. Sage intends to continue using the...
Support Computing Impairment of Patent In January 2017, Idea Company purchased a patent for a new...
Support Computing Impairment of Patent In January 2017, Idea Company purchased a patent for a new consumer product for $153,000. At the time of purchase, the remaining legal life of the patent was 17 years. However, because of the competitive nature of the market, the patent was estimated to have a useful life of 10 years. During 2021, it was determined that there was a potential health hazard present in the product As a result, the estimated future cash flows...
Problem 11-9 Shamrock Company uses special strapping equipment in its packaging business. The equipment was purchased...
Problem 11-9 Shamrock Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $11,800,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Shamrock's equipment. Shamrock's controller estimates that expected future net cash flows on the equipment will be $7,434,000 and that the fair value of the equipment is $6,608,000. Shamrock intends to continue using...
Gelama Bhd purchased an equipment on the 1 January 2015 for RM12,000,000. The equipment is depreciated...
Gelama Bhd purchased an equipment on the 1 January 2015 for RM12,000,000. The equipment is depreciated on straight lines basis over its five years useful life. Unfortunately, the equipment showed conditions of impairment in June 2017. The fair value less costs to sell on 30 June 2018 was RM 4,000,000 and the value in use was RM5,000,000. 201000.00M b Required: Compute the impairment loss a) (3 marks) b) Show the extract of the statement of financial position as at 31...
On January 2, 2017, X Company purchased equipment for $240,000. The equipment has an estimated useful...
On January 2, 2017, X Company purchased equipment for $240,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $30,000. The equipment is being depreciated using the double-declining balance method. What will be the balance in accumulated depreciation at December 31, 2018?
Computing Impairment of Patent In January 2017. Idea Company purchased a patent for a new consumer...
Computing Impairment of Patent In January 2017. Idea Company purchased a patent for a new consumer product for $153.000. At the time of purchase, the remaining legal life of the patent was 17 years. However, because of the competitive nature of the market the patent was estimated to have a useful life of 10 years. During 2021, it was determined that there was a potential health hazard present in the product, As a result, the estimated future cash flows from...
Use the following information for questions 4 and 5. On January 1, 2015, Fredrichs Inc, purchased equipment with a cost of $3,060,000, a useful life! of 10 years and residual value of $60,000, The company uses straight-line depreciation. At December 31, 2016, the company determines that impairment indicators are present. The fair value less cost to sell the asset is estimated to be $2,200,000. The asset's value-in-use is estimated to be $2,165,000. There is no change in the annet's useful...
Support Computing Impairment of Patent In January 2017, Idea Company purchased a patent for a new consumer product for $153,000. At the time of purchase, the remaining legal life of the patent was 17 years. However, because of the competitive nature of the market, the patent was estimated to have a useful life of 10 years. During 2021, it was determined that there was a potential health hazard present in the product As a result, the estimated future cash flows...
Problem 11-9 Shamrock Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2016 for $11,800,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2017, new technology was introduced that would accelerate the obsolescence of Shamrock's equipment. Shamrock's controller estimates that expected future net cash flows on the equipment will be $7,434,000 and that the fair value of the equipment is $6,608,000. Shamrock intends to continue using...
Gelama Bhd purchased an equipment on the 1 January 2015 for RM12,000,000. The equipment is depreciated on straight lines basis over its five years useful life. Unfortunately, the equipment showed conditions of impairment in June 2017. The fair value less costs to sell on 30 June 2018 was RM 4,000,000 and the value in use was RM5,000,000. 201000.00M b Required: Compute the impairment loss a) (3 marks) b) Show the extract of the statement of financial position as at 31...
On January 2, 2017, X Company purchased equipment for $240,000. The equipment has an estimated useful life of 5 years and an estimated salvage value of $30,000. The equipment is being depreciated using the double-declining balance method. What will be the balance in accumulated depreciation at December 31, 2018?
Computing Impairment of Patent In January 2017. Idea Company purchased a patent for a new consumer product for $153.000. At the time of purchase, the remaining legal life of the patent was 17 years. However, because of the competitive nature of the market the patent was estimated to have a useful life of 10 years. During 2021, it was determined that there was a potential health hazard present in the product, As a result, the estimated future cash flows from...
Most questions answered within 3 hours.
-
Where is the error in this code sequence?
String s1 = "Hello";
String s2 = "ello";...
asked 10 months ago -
Financial data for Joel de Paris, Inc., for last year
follow:
Joel de Paris, Inc.
Balance...
asked 10 months ago -
Consider this reaction:
Al2(SO4)3 (aq)+ BaCl3
(aq) Al2Cl6 (aq)- +
3BaSO4(s) . What is the...
asked 10 months ago -
Suppose that Savneet is considering increasing her
recent random sample from 20 car rentals to 40...
asked 10 months ago -
Trucks arrive at an unloading terminal at an average rate of 120
per hour.
Trucks arrive...
asked 10 months ago -
Why are methanol and ethanol completely soluble in water while
octanol is not very little soluble....
asked 10 months ago -
A facilities manager at a university reads in a research report
that the mean amount of...
asked 10 months ago -
When the CuSO4 is rehydrated by adding water to the anhydrous
compound, is this an endothermic...
asked 10 months ago -
A ray of sunlight is passing from diamond into crown glass; the
angle of incidence is...
asked 10 months ago -
A block of mass 0.249 kg is placed on top of a light, vertical
spring of...
asked 10 months ago -
how do the kidneys compensate in the presences of acidosis
a) trigger hyperventilate
b) reserve acid...
asked 10 months ago -
Question 501 pts
The rental rate of capital to the firm increases. Which of the
following...
asked 10 months ago