Conway Transportation Company has suffered losses due to increased competition in its service market from low-cost independent truckers. As a result, on December 31, 2006, the board of directors of the company approved and communicated a restructuring plan that calls for the elimination of 50 driver positions and 15 staff support positions. The market price for used tractor-trailers is depressed due to general overcapacity in the transportation industry. As a result, the market value of tractor-trailers is estimated to be only 40% of the book value of these assets. It is not believed that the impairment in fixed assets is recoverable. The cost and accumulated depreciation of the total tractor-trailer fleet on December 31 are $34 million and $9 million, respectively. The restructuring plan will provide a severance to the drivers and staff totaling $10,000 per employee, payable on March 14, 2007, which is the expected employee termination date.
a. Journalize the entries on December 31, 2006, for the fixed asset impairment and the employee severance costs.
b. Provide the balance sheet and note disclosure on December 31, 2006.
c. Journalize the entry for March 14, 2007.