Question

Bonita Industries bought a machine on January 1, 2008 for $809000. The machine had an expected life of 20 years and was expected to have a salvage value of $79000. On July 1, 2018, the company reviewed the potential of the machine and determined that its future net cash flows totaled $402000 and its fair value was $314000. If the company does not plan to dispose of it, what should Bonita record as an impairment loss on July 1, 2018

Answer 1

$75,250

Step-by-step explanation:

we must first determine the book value on June 30, 2018. Straight line depreciation expense per year = ($809,000 - $79,000) / 20 = $36,500

book value on June 30, 2018 = $809,000 - ($36,500 x 11.5 years) = $389,250

impairment loss = book value - fair market value = $389,250 - $314,000 = $75,250