Question

erlin Corporation owns a patent that has a carrying amount of $400,000. Merlin expects future net cash flows from this patent to total $250,000. The fair value of the patent is $310,000. Prepare journal entry, if necessary, to record the loss on Impairment

Answer 1

An impairment has occurred because expected net future cash flow (250,000) are less than the carrying amount ($400,000). The loss is measured as the difference between the carrying amount and fair value ($310,000).

Date Description and Explanation Debit Credit

Loss on impairment $90,000

Patents ($400,000 - $310,000) $90,000

(To record the loss on Impairment)