Question:
Mueller Company purchased equipment 8 years ago for $1,000,000. The equipment has been depreciated using the straight-line method with a 20-year useful life and 10% residual value. Mueller's operations have experienced significant losses for the past 2 years and, as a result, the company has decided that the equipment should be evaluated for possible impairment. The management of Mueller Company estimates that the equipment has a remaining useful life of 7 years. Net cash inflow from the equipment will be $80,000 per year. The fair value of the equipment is $240,000.
1.) Determine if an impairment loss should be recognized
2.) Determine the amount of the loss and prepare the journal entry to record the loss.
3.) How would your answer to (1) change if the fair value of the equipment was $500,000?