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After recording depreciation for the current year, Media Mania Incorporated decided to discontinue using its printing equipment. The equipment had cost $750,000, accumulated depreciation was $550,000, and its fair value (based on estimated future cash flows from selling the equipment) was $50,000. Determine whether the equipment is impaired. Prepare the journal entries to record the impaired asset.

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Answer:

The fair value is $200,000 and the book value is $150,000. Therefore the asset is impaired.

Journal Entry

Explanation:

Cost of Equipment                           $750,000

Less: Accumulated Depreciation    $550,000

Book Value of equipment  a           $200,000

Less Fair Value b                               $50,000

Impairment Loss(a-b)                        $150,000

The Journal Entry is shown below:-

Accumulated Depreciation Dr, $550,000

        To Equipment                                       $550,000

(Being to remove accumulated depreciation on equipment is recorded)

Impairment Loss Dr, $150,000  

          To Equipment               $150,000

(Being impairment loss on equipment is recorded)

The journal entry to record impaired assets will be:

  • Debit Accumulated Depreciation $550,000
  • Credit Equipment $550,000

  • Debit Impairment Loss $150,000  
  • Credit Equipment  $150,000

(Being impairment loss on equipment is recorded)

Cost of Equipment = $750,000

Less: Accumulated Depreciation = $550,000

Book Value of equipment = $200,000

Less Fair Value = $50,000

Impairment Loss = $150,000

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