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Question: The management of Petro Garcia 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, 2017. On December 31, 2017, management projected its future net cash flows from this equipment to be $300,000 and its fair value to be $230,000. The company intends to use this equipment in the future.

Instructions: (a) Prepare the journal entry (if any) to record the impairment at December 31, 2017.

(b) Where should the gain or loss (if any) on the write-down be reported in the income statement?

(c) At December 31, 2018, the equipment's fair value increased to $260,000. Prepare the journal entry (if any) to record this increase in fair value.

(d) What accounting issues did management face in accounting for this impairment?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92573981

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