Question

Presented below is information related to copyrights owned by Oriole Company at December 31, 2020.

Cost $8,520,000
Carrying amount 4,410,000
Expected future net cash flows 3,910,000
Fair value 3,320,000
Assume that Oriole Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years.
Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts

Answer 1

Step-by-step explanation:

Date Accounts titles and Explanation Debit Credit

Dec 31, 2020 Loss on Impairment 1,090,000

Copyrights 1,090,000

(To record the loss on impairment of copyrights)

Dec 31, 2021 Amortization expense 332,000

Copyrights 332,000

(To record the amortization on copyrights)

Dec 31, 2021 No entry

Explanation

1. Loss on Impairment = Carrying value - Fair value

= $4,410,000 - $3,320,000 = $1,090,000

2. Amortization expense = (Carrying amount - Loss on impairment) / Useful Life

= ($4,410,000 - $1,090,000) / 10 years = $332,000