Dragon Company uses special strapping equipment in its packa

Dragon Company uses special strapping equipment in its packaging business. The e on January1, 2016 for $6,000,000 and had an estimated useful life of 8 years with no salvage valu uipment was purchased At December 31, 2017, new technology was introduced that would accelerate the obsoles equipment. Dragon\'s controller estimates that expected future net cash flows on the equipment will be $3,750,000 and that the fair value of the equipment is $3,300,000 Dragon intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years Dragon uses straight-line depreciation a) Is the asset impaired? Why or why not? b) Prepare the journal entry to record the impairment at December 31, 2017. (If no entry required, write \"No Entry\") c) Prepare the journal entry for depreciation of the equipment at December 31, 2018. (If no entry required, write \"No Entry.\") d) The fair value of the equipment at December 31, 2018, is estimated to be $3,450,000. entry necessary for recoverability of impairment. (If no entry required, write \"No Entry.\") Prepare any e) Assume that Dragon intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018. Prepare the journal entry for depreciation of the equipment at December 31, 2018. (If no entry required, write \"No Entry.\") f) Assume that Dragon intends to dispose of the equipment and that it has not been disposed of as of December 31, 2018. The fair value of the equipment at December 31, 2018, is estimated to be 53,450,000. Prepare any entry necessary for recoverability of impairment. (If no entry required, write No Entry

Solution

Ans a an asset is said to be impaired if carrying value of asset exceeds future net cash flows Future net cash flows $3,750,000 Carrying value of equipment 4500000 6000000-(6000000/8*2) As carrying value exceeds future net cash flow hence asset is said to be impaired. The loss on impairement is recorded which is the differnce between fair value and book value of equipment. Ans b Dr Cr Loss on Impairement 1200000 Accumulated Depreciation 1200000 (4500000-3300000) ans c Depreciation expenses 825000 Accumulated Depreciation 825000 (3300000/4) ans d Now the carrying value of asset as on 12/31/2018 3300000-825000 2475000 Fair market value is more than carrying value hence it meets recoverability test Dr Cr Accumulated Depreciation 975000 Recovery on Impairement Loss 975000 (3450000-2475000) ans e No entry required as no depreciation is recorded on impaired assets. ans f Dr Cr Accumulated Depreciation 150000 Recovery on Impairement Loss 150000 (3450000-3300000) If any doubt please comment