Problem:
Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology was introduced that would accelerate the obsolescence of Dolphin's equipment. Dolphin's controller estimates that expected future net cash flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation.
Required:
Question 1: What is the depreciable base of the asset at the end of 2nd year?
Question 2: Prepare the journal entry (if any) to record the impairment at December 31, 2014.
Question 3: Prepare any journal entries for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $4,600,000.
Question 4: Prepare the journal entry (if any) to record the impairment at December 31, 2014. assuming that Roland intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015.
Note: Show supporting computations in good form.