Prepare any journal entries for the equipment

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Reference no: EM13786716

Roland Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2013 for 10,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014 new technology was introduced that would accelerate the obsolescence of Roland's equipment. Roland's controller estimates that expected future net cash flows on the equipment will be 6,300,000 and that fair value of the equipment is 5,600,000. Roland intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Roland uses straight line depreciation.

a) Prepare the journal entry (if any) to record the impairment at December 31, 2014.

b) Prepare any journal entries for the equipment at Dec 31, 2015. The fair value of the equipment at December 31, 2015 is estimated to be 5,900,000.

For a) I got 10,000,000 - (1,250,000 x 2 ) = 7,500,000 - 6,300,000 = 1,200,000 for impairment loss.

For b) I got 7,500,000 - 1,200,000 = 6,300,000. So since Carrying value > Fair value is the loss of impairment 400,000?

Reference no: EM13786716

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