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asambeis [7]
3 years ago
15

The management of Petro Garcia Inc. was discussing whether certain equipment should be written off as a charge to current operat

ions because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $400,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future. Prepare the journal entry (if any) to record the impairment at December 31, 2020
Business
1 answer:
tigry1 [53]3 years ago
5 0

Answer:

Dec 31,2020

Dr Loss on impairment $270,000

Cr Accumulated depreciation-Equipment $270,000

Explanation:

Preparation of the journal entry to record the impairment at December 31, 2020

First step is to calculate the Loss on impairment

Cost $900,000

Less: Accumulated depreciation ($400,000)

Carrying Amount $500,000

Less: Fair value ($230,000)

Loss on impairment $270,000

Now let Prepare the journal entry

Dec 31,2020

Dr Loss on impairment $270,000

Cr Accumulated depreciation-Equipment $270,000

(To record the impairment)

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