Question

Waterway Industries purchased equipment in 2019 at a cost of $906000. Two years later it became apparent to Waterway Industries that this equipment had suffered an impairment of value. In early 2021, the book value of the asset is $583000 and it is estimated that the fair value is now only $359000. The entry to record the impairment is

A. Retained Earnings 224000
Accumulated Depreciation—Equipment 224000
B. Loss on Impairment of Equipment 224000
Accumulated Depreciation—Equipment 224000
C. No entry is necessary as a write-off violates the historical cost principle.
D. Retained Earnings 224000
Reserve for Loss on Impairment of Equipment 224000

Answer 1

B. Loss on Impairment of Equipment 224000

Accumulated Depreciation—Equipment 224000

Step-by-step explanation:

The journal entry to record the impairment is shown below:

Impairment loss ($583,000 - $359,000) $224000

To Accumulated depreciation -Equipment $224000

(Being the impairment loss is recorded)

For recording this we debited the impairment loss as it increased the losses and at the same time it decreased the value of the assets so the accumulated depreciation is credited