Answer:
The company should record a journal entry that includes: Debit to Impairment Loss $8,000
Explanation:
The company uses straight-line depreciation, Depreciation Expense each year is calculated by following formula:
Depreciation Expense = (Cost of delivery truck − Residual Value )/Useful Life = ($30,000 - $2,000)/7 = $4,000
At the end of year 4, Accumulated depreciation = $4,000 x 4 = $16,000
At the end of year 4, Book value of the truck = $30,000 - $16,000 = $14,000
The company expects to sell the truck for $6,000 < Book value of the truck
California Creamery should record Impairment Loss for $14,000-$6,000=$8,000
The journal entry includes:
Debit to Impairment Loss $8,000
