The management of Sprague Inc. was discussing whether certain equipment should be written off as a charge
Question:
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 \($400\),000 as of December 31, 2015. On December 31, 2015, 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 4 years.
Instructions
(a) Prepare the journal entry (if any) to record the impairment at December 31, 2015.
(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?
(c) At December 31, 2016, the equipment’s recoverable amount is \($270\),000. Prepare the journal entry
(if any).
(d) What accounting issues did management face in accounting for this impairment?
Step by Step Answer:
Intermediate Accounting IFRS Edition
ISBN: 9781118443965
2nd Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield