Answer:
Karen Company
a. The equipment is impaired at July 1, 2019 because its projected future cash flows of $195,000 are less than its current carrying value of $211,000.
b. The amount of the impairment loss is:
= $16,000.
c. Journal Entry to record the impairment:
July 1, 2019:
Debit Impairment Loss $16,000
Credit Equipment $16,000
To record the estimated impairment loss.
Explanation:
a) Data and Calculations:
July 1, 2015:
Purchase cost of equipment = $325,000
Estimated useful life = 10 years
Expected salvage value = $40,000
Depreciable amount = $285,000 ($325,000 - $40,000)
Annual depreciation expense = $28,500 ($285,000/10)
July 1, 2019:
Total accumulated depreciation = $114,000 ($28,500 * 4 years)
Carrying amount of the equipment = $211,000 ($325,000 - $114,000)
Projected future cash flows = $195,000
Difference (Impairment loss) $16,000
