Question

The management of Bonita Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $981,000 with depreciation to date of $436,000 as of December 31, 2020. On December 31, 2020, management projected its future net cash flows from this equipment to be $327,000 and its fair value to be $250,700. The company intends to use this equipment in the future.

Required:
Prepare the journal entry (if any) to record the impairment at December 31, 2020.

Answer 1

Answer and Explanation:

The journal entry is shown below:

Loss on equipment (impairment) $294,300

To Accumulated depreciation $294,300

(Being loss on equipment is recorded)

Here loss on equipment is debited as it increased the loss while on the other hand the accumulated depreciation is credited as it decreased the assets

Working notes

= $981,000 - $436,000 - $250,700

= $294,300