Final answer:
To record the $3,750 impairment on equipment with a book value of $48,000 and a fair value of $44,250, debit the impairment loss account and credit the equipment account by the impairment amount.
Step-by-step explanation:
The student is asking how to record an impairment loss when the fair value of a company's equipment falls below its book value. Given that the equipment has a book value of $48,000 and a fair value of $44,250, the impairment loss is $3,750. To account for this impairment, you would need to make the following journal entry:Debit an impairment loss account for $3,750Credit the equipment account for $3,750This adjusts the carrying amount of the asset to its recoverable amount and recognizes the loss in the income statement. The main answer explains how to deal with the impairment of an asset when the decline in fair value meets the impairment test criteria. Assets are tested for impairment when there is an indication that the asset might be impaired, and an impairment loss is recorded if the asset's carrying amount exceeds its recoverable amount.Conclusion The impaired asset should now reflect its fair market value, and the loss due to impairment is reflected in the company’s financial statements, thereby presenting a more accurate financial position.