Question
Rohan Company purchased equipment in January 2008 for $8,000,000 and 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 equipment at December 31, 2011.