On July 1, Arcola Company purchases equipment for $330,000. The equipment has an estimated useful life of
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On July 1, Arcola Company purchases equipment for $330,000. The equipment has an estimated useful life of 10 years and expected salvage value of $40,000. The company uses straight-line depreciation. Four years later, economic factors cause the fair value of the equipment to decline to $160,000. On this date, Arcola examines the equipment for impairment and estimates $185,000 in undiscounted expected cash inflows from this equipment.
- 1. Compute the annual depreciation expense relating to this equipment.
- 2. Compute the equipment's net book value at the end of the fourth year.
- 3. Apply the test of impairment to this equipment as of the end of the fourth year. Is the equipment impaired? Show supporting computations.
- 4. If the equipment is impaired at the end of the fourth year, compute the impairment loss.
Related Book For
Intermediate accounting
ISBN: 978-0077647094
7th edition
Authors: J. David Spiceland, James Sepe, Mark Nelson
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