Presented below is information related to equipment owned by Suarez Company at December 31, 2017. Cost $9,000,000
Accumulated depreciation to date 1,000,000
Expected future net cash flows 7,000,000
Fair value 4, 800,000
Assume that Suarez will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.
Instructions
(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.
(b) Prepare the journal entry to record depreciation expense for 2018.
(c) The fair value of the equipment at December 31, 2018, is $5, 100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

Answer and Explanation:

The journal entries are shown below:

But before that following calculations need to be done

For impairment loss

Cost $9,000,000

Less: Accumulated Deprecation-equipment $1,000,000

Net Value $8,000,000

Less: Fair value $4,800,000

Loss on Impairment $3,200,000

For depreciation expense

Fair value $4,800,000

Life4 years

Depreciation Expenses$ 1,200,000

The journal entries are as follows:

1 Loss on Impairment $3,200,000

        To Accumulated Deprecation-equipment$3,200,000

(being loss on impairment is recorded)

2 Depreciation Expenses $1,200,000

       To Accumulated Deprecation-equipment $1,200,000

(Being depreciation expense is recorded)

3 No Journal Entryis required

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