Question - Impairment
Presented below is information related to equipment owned by Suarez Company at December 31, 2010.
Cost $9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash flows 7,000,000
Fair value 4,400,000
As of December 31, 2010, the equipment has a remaining useful life of 4 years. Assume that Suarez intends to dispose of the equipment in the coming year. It is expected that the cost of disposal will be $20,000.
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2010.
(b) Is it necessary to prepare the journal entry to record depreciation expense for 2011?
(c) The asset was not sold by December 31, 2011. The fair value of the equipment on that date is $5,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value. It is expected that the cost of disposal is still $20,000.