Question

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, is $5,916,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

c. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.

Please help me solve. Work and notes would be appreciated so i can follow along and learn. Thank you in advance!

Answer 1

	a
		Debit	Credit
December 31, 2018	Depreciation expense	1113600
	Accumulated depreciation-Equipment		1113600
	(To record depreciation expense for 2018)
	b
		Debit	Credit
December 31, 2018	No entry	0
	No entry		0
	c
		Debit	Credit
December 31, 2017	Loss on impairment	3712000
	Accumulated depreciation-Equipment		3712000
	(To record impairment loss)
	Workings:
	Cost	10440000
	Less: Accumulated depreciation	1160000
	Carrying Amount	9280000
	Less: Fair value	5568000
	Loss on impairment	3712000
	Revised Carrying amount	5568000
	Divide by Remaining life	5
	Depreciation expense for 2018	1113600
	Restoration of impairment loss is not permitted. No entry is required to record increase in fair value.