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Dexter Company uses special strapping equipment in its packagingbusiness. The equipment was purchased in January 2011 for$8,000,000 and had an estimated useful life of 8 years with nosalvage value. At December 31, 2012, new technology was introducedthat would accelerate the obsolescence of Dexter’s equipment.Dexter’s controller estimates that expected future net cash flowson the equipment will be $5,000,000 and that the fair value of theequipment is $4,400,000. Dexter intends to continue using theequipment, but it is estimated that the remaining useful life is 4years. Dexter uses straight-line depreciation.

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(a) Prepare the journal entry (ifany) to record the impairment at December 31, 2012.

(b) Prepare the journal entries forthe equipment at December 31, 2013. The fair value of the equipmentat December 31, 2013, is estimated to be $4,600,000.

(c) Repeat therequirements for (a) and (b), assuming that Roland intends todispose of the equipment and that it has not been disposed of as ofDecember 31, 2013.

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Casey Durgan
Casey DurganLv2
28 Sep 2019

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Sheridan Company uses special strapping equipment in itspackaging business. The equipment was purchased in January 2016 for$10,500,000 and had an estimated useful life of 8 years with nosalvage value. At December 31, 2017, new technology was introducedthat would accelerate the obsolescence of Sheridan’s equipment.Sheridan’s controller estimates that expected future net cash flowson the equipment will be $6,615,000 and that the fair value of theequipment is $5,880,000. Sheridan intends to continue using theequipment, but it is estimated that the remaining useful life is 4years. Sheridan uses straight-line depreciation.

1. Prepare the journal entry (if any) to record the impairmentat December 31, 2017.

2. Prepare the journal entry for the equipment at December 31,2018. The fair value of the equipment at December 31, 2018, isestimated to be $6,195,000.

3. Prepare the journal entry (if any) to record the impairmentat December 31, 2017 and for the equipment at December 31, 2018,assuming that Sheridan intends to dispose of the equipment and thatit has not been disposed of as of December 31, 2018.

RolandCompany uses special strapping equipment in its packaging business. The equipmentwas purchased in January 2011 for $10,100,000 and had an estimateduseful life of 8 years with no salvage value. At December 31, 2012,new technology was introduced that would accelerate theobsolescence of Roland's equipment. Roland's controller estimatesthat expected future net cash flows on the equipment will be$6,300,000 and that the fair value of the equipment is $5,600,000.Roland intends to continue using the equipment, but it is estimatedthat the remaining useful life is 4 years. Roland usesstraight-line depreciation. (a) Prepare the journal entry (if any)to record the impairment at December 31, 2012. (b) Prepare thejournal entry for the equipment at December 31, 2013. The fairvalue of the equipment at December 31, 2013, is estimated to be$5,900,000.(c) repeat the requirements for (a) and (b), assumingthat Roland intends to dispose of the equipment and that it has notbeen disposed of as of December 31, 2013.

Cheyenne Company purchased a machine on January 1, 2013, for$65,000. The estimated life is 8 years and the estimated salvagevalue is $5,000. The machine has an estimated service life of48,000 hours. In 2013, 6,900 hours were used. REQUIRED: Compute thedepreciation to be recorded for the year ending December 31, 2013using the: Straight-line method Production hours method Sum-of-theyears' digits method Double-declining balance method B. Presentedbelow is information related to equipment owned by Swiss Company atDecember 31, 2013: Cost $9,000,000 Acc. depreciation to date1,000,000 Expected undiscounted future cash flows 7,000,000 FairValue 4,800,000 Assume that Swiss Company will continue to use theasset in the future. As of December 31, 2013, the equipment has aremaining useful life of 4 years and Swiss uses the straight linemethod of depreciation. REQUIRED: Prepare the journal entry torecord the impairment at December 31, 2013. Prepare the journalentry to record depreciation expense for 2014. Prepare the journalentry (if any) necessary to record the increase in fair value to$5,100,000 as of December 31, 2014. Would your answer to (3) bedifferent if Swiss intended to dispose of the equipment rather thanuse it in the future?

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