Question

Jurassic Company owns equipment that cost $900,000 and has accumulated depreciation of $380,000. The expected future net cash flows from the use of the asset are expected to be $500,000. The fair value of the equipment is $400,000. Prepare the journal entry, if any, to record the impairment loss.

Answer 1

To record an impairment loss, Jurassic Company should debit the Impairment Loss on Equipment account and credit the Equipment account for the difference between the carrying amount and the fair value, which is $120,000 in this case.

Step-by-step explanation:

The student's question pertains to the accounting treatment for impairment loss on equipment, which is an aspect of financial accounting and reporting. When the carrying amount of an asset exceeds its recoverable amount (the higher of fair value less costs to sell and its value in use), an impairment loss must be recognized. In this case, Jurassic Company's equipment has a carrying amount of $520,000 (cost of $900,000 less accumulated depreciation of $380,000). The fair value of the equipment is $400,000, which is less than the carrying amount, indicating that an impairment loss has occurred.

To record the impairment loss, Jurassic Company should make the following journal entry:

• Debit Impairment Loss on Equipment: $120,000
• Credit Equipment: $120,000

This entry reduces the carrying amount of the equipment to its fair value. The impairment loss of $120,000 is calculated as the difference between the carrying amount ($520,000) and the fair value ($400,000).

Answer 2

The answer and procedures of the exercise are attached in image below.

Explanation

Please consider the data provided by the exercise. If you have any question please write me back. All the exercises are solved in a single sheet with the formulas indications.