Final answer:
To record the impairment of the asset, the journal entry would include a loss on impairment, reversal of accumulated depreciation, and a gain on asset restoration. The depreciation expense for 2021 is recorded with a debit to depreciation expense and a credit to accumulated depreciation. An increase in fair value is recorded as a gain on asset restoration in the revaluation surplus account.
Step-by-step explanation:
To record the impairment of the asset at December 31, 2020, the journal entry will be:
Account Titles and Explanation
Debit
Loss on Impairment 2,508,000
Debit
Accumulated Depreciation 1,140,000
Debit
Equipment 889,000
Credit
Gain on Asset Restoration 778,000
Credit
Revaluation surplus 1,730,000
This journal entry reflects the impairment of the equipment, which is the difference between the fair value and the carrying amount. It also includes the reversal of the accumulated depreciation and the recognition of a gain on asset restoration and revaluation surplus.
To record the depreciation expense for 2021, the journal entry will be:
Account Titles and Explanation
Debit
Depreciation Expense 1,596,000
Credit
Accumulated Depreciation 1,596,000
The depreciation expense is calculated by dividing the remaining carrying amount of the equipment by the remaining useful life.
To record the increase in fair value at December 31, 2021, the journal entry will be:
Account Titles and Explanation
Debit
Revaluation Surplus 342,000
Credit
Gain on Asset Restoration 342,000
This journal entry reflects the increase in fair value of the equipment and recognizes it as a gain on asset restoration in the revaluation surplus account.