Final answer:
An impairment loss of $200,000 should be recognized for the star division since its fair value of $3,200,000 is less than its carrying amount of $3,400,000. The journal entry would debit an impairment loss and credit accumulated impairment losses or a specific asset account to reflect this decrease in value.
Step-by-step explanation:
The question deals with the accounting for impairment loss of a division known as the star division. According to accounting standards, an impairment loss must be recognized when the carrying amount of an asset exceeds its recoverable amount, which is the higher of an asset's fair value less costs to sell and its value in use.
If the carrying amount of the star division is $3,400,000 and its fair value is now determined to be $3,200,000, an impairment loss should be recognized because the carrying amount exceeds the fair value. Assuming that there are no costs to sell, the journal entry on December 31, 2023, to record the impairment loss would be as follows:
- Debit Impairment Loss on the Star Division: $200,000
- Credit Accumulated Impairment Losses (or a specific asset account): $200,000
This journal entry reflects the loss in value of the star division as an expense on the income statement (through the impairment loss account) and reduces the carrying amount of the asset on the balance sheet (through a credit to the accumulated impairment loss account or a specific asset account).
If there's no impairment loss to be recorded, it would be because the carrying amount does not exceed the recoverable amount, meaning either the value in use is greater than the carrying amount or there are other mitigating factors described in relevant accounting guidelines.