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Presented below is information related to equipment owned by Sheffield Company at December 31, 2025. Sheffield intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $23,400. As of December 31,2025 , the equipment has a remaining useful life of 4 years. (a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2025. (If no entry is required, select "No entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. List debit entry before credit entry.)

User Kux
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Final answer:

Without specific numerical values for the equipment's carrying amount and recoverable amount, a journal entry for asset impairment cannot be provided. The necessary entry would involve debiting Impairment Loss and crediting the Equipment account by the impairment amount.

Step-by-step explanation:

The student's question pertains to the recording of an asset impairment for equipment that is expected to be disposed of by Sheffield Company. The journal entry for an impairment involves determining the equipment's recoverable amount (if any) and comparing it with its carrying amount. If the recoverable amount is less than the carrying amount, then an impairment loss should be recognized for the difference. However, since no specific numbers other than the disposal cost are provided, a generic answer would suggest debiting an impairment loss account and crediting the equipment account with the impairment loss value, provided that amount can be supported by a recoverable value calculation. Since the question does not include enough information to calculate the impairment loss, we assume that no entry can be made without additional data.

User Jeffknupp
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Final answer:

An impairment loss is recognized if the equipment's expected future net cash flows are less than its carrying amount. The loss is measured as the difference between the carrying amount and the fair value less costs to sell. The journal entry involves debiting a loss account and crediting the accumulated depreciation account, if an impairment has occurred.

Step-by-step explanation:

To determine if an impairment loss should be recognized for equipment, Sheffield Company needs to compare the equipment's carrying amount (book value) to the sum of the expected future net cash flows from the use and eventual disposal of the equipment. If the expected future net cash flows are less than the carrying amount, an impairment loss should be recognized for the amount by which the carrying value exceeds the net cash flows.

Since the cost of disposal is known ($23,400), and we assume that the expected net cash flows are less than the carrying amount as is often the case when considering impairment, Sheffield Company would record the impairment loss as follows:

  1. Determine the impairment loss amount, which is the difference between the equipment's carrying amount and its fair value less costs to sell.
  2. Record the impairment loss by debiting a loss account and crediting the accumulated depreciation account.

The journal entry would thus look like this, assuming an impairment loss has been determined:

Dr Loss on Impairment (Amount)
Cr Accumulated Depreciation—Equipment (Amount)

If no impairment loss is required (meaning the net cash flows exceed the carrying amount), then no journal entry is made.

User Kornel Dylski
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