related to use of this equipment. a. Is the equipment impaired at July 1, 2020? Explain. b. If the equipment is impaired on July 1, 2020, compute the impairment loss and prepare a jour- nal entry to record the loss.

related to use of this equipment. a. Is the equipment impaired at July 1, 2020? Explain. b. If the equipment is impaired on July 1, 2020, compute the impairment loss and prepare a jour- nal entry to record the loss.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

# Computing and Assessing Plant Asset Impairment

Zeibart Company purchases equipment for $225,000 on July 1, 2016, with an estimated useful life of 10 years and an expected salvage value of $25,000. Straight-line depreciation is used. On July 1, 2020, economic factors cause the fair value of the equipment to decline to $90,000. On this date, Zeibart examines the equipment for impairment and estimates $125,000 in future cash inflows related to the use of this equipment.

### a. Is the equipment impaired at July 1, 2020? Explain.
### b. If the equipment is impaired on July 1, 2020, compute the impairment loss and prepare a journal entry to record the loss.
### c. What amount of depreciation expense would Zeibart record for the 12 months from July 1, 2020 through June 30, 2021? Prepare a journal entry to record this depreciation expense.
*(Hint: Assume no change in salvage value.)*
### d. Using the financial statement effects template, show how the entries in parts b and c affect Zeibart Company’s balance sheet and income statement.

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