Problem
Rohan Company purchased equipment in January 2008 for $8,000,000 that had an estimated useful life of 6 years with a salvage value of $2,000,000. At December 31, 2010, new technology was introduced that would accelerate the obsolescence of Rohan's equipment. Rohan's controller estimates that expected future net cash flows on the equipment will be $4,900,000 and that the fair value of the equipment is $4,600,000. Rohan intends to continue using the equipment, but it is estimated that the remaining life is 2 years and new salvage value is $1,000,000. Rohan uses straight-line depreciation.
Required:
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2010.
(b) Prepare any journal entries for the depreciation of the equipment at December 31, 2011.
(c) Assume that Rohan used the double-declining balance method of depreciation, prepare the journal entry (if any) to record the impairment at December 31, 2010.
(d) Assume that Rohan used the double-declining balance method of depreciation, prepare the journal entries for the depreciation of the equipment at December 31, 2011.