The management of Petro Garcia Inc. was discussing whethercertain equipment should be written off as a charge to currentoperations because of obsolescence. This equipment has a cost of$900,000 with depreciation to date of $400,000 as of December 31,2014. On December 31, 2014, management projected its future netcash flows from this equipment to be $300,000 and its fair value tobe $230,000. The company intends to use this equipment in thefuture.
(a) Prepare the journal entry (if any) to record the impairmentat December 31, 2014.
(b) Where should the gain or loss (if any) on the write-down bereported in the income statement?
(c) At December 31, 2015, the equipmentâs fair value increasedto $260,000. Prepare the journal entry (if any) to record thisincrease in fair value.
(d) What accounting issues did management face in accounting forthis impairment?
The management of Petro Garcia Inc. was discussing whethercertain equipment should be written off as a charge to currentoperations because of obsolescence. This equipment has a cost of$900,000 with depreciation to date of $400,000 as of December 31,2014. On December 31, 2014, management projected its future netcash flows from this equipment to be $300,000 and its fair value tobe $230,000. The company intends to use this equipment in thefuture.
(a) Prepare the journal entry (if any) to record the impairmentat December 31, 2014.
(b) Where should the gain or loss (if any) on the write-down bereported in the income statement?
(c) At December 31, 2015, the equipmentâs fair value increasedto $260,000. Prepare the journal entry (if any) to record thisincrease in fair value.
(d) What accounting issues did management face in accounting forthis impairment?
