Reference no: EM132750856
Dolphin Company uses special strapping equipment in its packaging business. The equipment was purchased in January 20X3 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 20X4, new technology was introduced that would accelerate the obsolescence of Dolphin's equipment. Dolphin's controller estimates that expected future net cash flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,400,000. Dolphin intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dolphin uses straight-line depreciation.
Instructions
Problem (a) What is the carrying value of the asset?
Problem (b) Prepare the journal entry (if any) to record the impairment at December 31, 20X4.
Problem (c) Prepare journal entries for the equipment at December 31, 20X5. The fair value of the equipment at December 31, 20X5, is estimated to be $4,600,000.
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