The management of Splish Brothers Inc., a small private company that uses the cost recovery impairment model, was discussing whether certain equipment should be written down as a charge to current operations because of obsolescence. The assets had a cost of $870,000, and depreciation of $360,000 had been taken to December 31, 2020. On December 31, 2020, management projected the undiscounted future net cash flows from this equipment to be $350,000, and its fair value to be $220,000. The company intends to use this equipment in the future.
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- The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment was purchased in 1 January 2018 at a cost of $900,000, with an estimated useful life of 5 years, depreciated with sum of years digit method. On December 31, 2019, management projected the present value of future net cash flows from this equipment to be $300,000 and its fair value less cost of disposal to be $280,000. The company intends to use this equipment in the future. The remaining useful life of the equipment is 3 years. Instructions (a) Prepare the journal entry (if any) to record the depreciation and impairment at December 31, 2019. (b) Prepare the journal entry to record depreciation expense for 2020 At December 31, 2020, the equipment's recoverable amount is $270,000. Prepare the journal entry. (if any). (c)At the end of 2020, Bonita Company is conducting an impairment test and needs to develop a fair value estimate for machinery used in its manufacturing operations. Given the nature of Bonita's production process, the equipment is for special use. (No secondhand market values are available.) The equipment will be obsolete in 2 years, and Bonita's accountants have developed the following cash flow information for the equipment. Year 2021 2022 2022 Net Cash Flow Estimate $5,440 9,500 $(460) 2,180 3,800 Scrap value $530 970 Probability Assessment 40% Click here to view factor tables 60% 20% 60% 20% 50% 50% Using expected cash flow and present value techniques, determine the fair value of the machinery at the end of 2020. Use a 6% discount rate. Assume all cash flows occur at the end of the year. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.) Sair Fair value of the machinery at the end of 2020 $On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. c) Assuming that Bambi is a public Canadian company, identify which model should be used to test for impairment. d) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and Explanation Debit…
- On January 1, 2021, Bambi Ltd. purchased equipment for $728,000. The equipment was assumed to have an 8-year useful life and no residual value and was to be depreciated using the straight-line method. On January 1, 2023, Bambi's management became concernedthat the equipment may have become obsolete. Management calculated that the undiscounted future net cash flows from the equipment was $523,250, the discounted future net cash flows was $464,100, and the current fair value of the equipment less cost ofdisposal (of $1,800 ) was $455,000. (a)Assuming that Bambi is a private Canadian company following ASPE, identify which model should be used to test for impairment. b) Record the journal entry to record the impairment loss, if any. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List debit entry before credit entry.) Account Titles and…6. The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge to current operations because of obsolescence. This equipment has a cost of $900,000 with depreciation to date of $500,000 as of December 31, 2022. On December 31, 2022, management projected the present value of future net cash flows from this equipment to be $300,000 and its fair value less cost of disposal to be $250,000. The company intends to use this equipment in the future. The remaining useful life of the equipment is four years. Required: Prepare the journal entry (if any) to record the impairment at December 31, 2022.On January 1, 2015, Vallahara Company purchased machinery for $650,000, which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of $50,000. Late in 2019, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of 5 years, over which it estimates the asset will produce total cash inflows of $1,000,000 and will incur total cash outflows of $825,000. The cash flows are independent of the company’s other activities and will occur evenly each year. Vallahara is not able to determine the fair value based on a current selling price of the machinery. Vallahara’s discount rate is 10%. Required: 1. Prepare schedules to determine whether, at the end of 2019, the machinery is impaired and, if so, the impairment loss to be recognized. 2. If the machinery is impaired, prepare the journal entry to record the impairment. 3. If…
- Dexter Inc. acquired a machine on January 1, 2010 for $520,000. The machine had an expected life of 20 years and salvage value of $40,000. Dexter uses straight line depreciation. On July 1, 2020, the company reviewed the machine for impairment and determined that its undiscounted future net cash flows totaled $200,000 and its discounted future net cash flows totaled $154,000. If no active market exists for the machine and the company plans to continue operating it, what should Dexter record as an impairment loss on July 1, 2020? Compute the carrying value of the machine on July 1, 2020. Is the machine impaired? Explain the basis of your conclusion. Include numbers. Compute the amount of impairment loss recorded on July 1, 2020 (if any). Compute the carrying value of the machine on December 31, 2020, assuming no change in its service life and salvage value.Holt Developments Ltd. put an asset in service on January 1, 2021. Its cost was $432,000, its predicted service life was six years, and its expected residual value was $43,200. The company decided to use double-declining-balance depreciation. After consulting with the company’s auditors, management decided to change to straight-line depreciation in 2023, without changing either the original service life or residual value.Required:a. What is depreciation expense for 2023? b. Calculate the effect of this change on retained earnings.On January 1, 2022, the Vallahara Company purchased machinery for P 650,000 which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of P 50,000. Late in 2026, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it estimates the asset will produce total cash inflows of P 1,000,000 and will incur total cash outflows of P 825,000. The cash flows are independent of the company's other activities and will occur evenly each year. The company is not able to determine the fair value based on a current selling price of the machinery. The company's discount rate is 10%. Required 1. Prepare schedules to determine whether, at the end of 2026, the machinery is impaired and, if so, the impairment loss to be recognized. 2. If the machinery is impaired, prepare the journal entry to record the impairment.…
- On January 1, 2022, the Vallahara Company purchased machinery for P 650,000 which it installed in a rented factory. It is depreciating the machinery over 12 years by the straight-line method to a residual value of P 50,000. Late in 2026, because of increasing competition in the industry, the company believes that its asset may be impaired and will have a remaining useful life of five years, over which it estimates the asset will produce total cash inflows of P 1,000,000 and will incur total cash outflows of P 825,000. The cash flows are independent of the company’s other activities and will occur evenly each year. The company is not able to determine the fair value based on a current selling price of the machinery. The company’s discount rate is 10%. Required 1. Prepare schedules to determine whether, at the end of 2022, the machinery is impaired and, if so, the impairment loss to be recognized. 2. If the machinery is impaired, prepare the journal entry…Madison Company purchased a machine on February 1, 2018, for $200,000. On December 31, 2021, when the book value of the machine is $90,000, Madison Company checks to see if the machine is impaired. Due to recent technological advances Madison Company expects the machine to generate future cash flows of $70,000. If Madison Company estimates the current fair market value of the machine is $55,000 on December 31, 2021, what amount of impairment loss (if any) should be recorded? $20,000 O $35.000 O $60,000 O $90,000 O The asset is not impaired.Splish Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2019 for $12,400,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2020, new technology was introduced that would accelerate the obsolescence of Splish's equipment. Splish's controller estimates that expected future net cash flows on the equipment will be $7,812,000 and that the fair value of the equipment is $6,944,000. Splish intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Splish uses straight-line depreciation. (a) (c) Prepare the journal entry (if any) to record the impairment at December 31, 2020. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically Indented when amount is entered. Do not Indent manually) Date Account Titles and Explanation Dec. 31 (b) Textbook and Media Date Account Titles and…