IMPAIRMENT On January 1, 2002, the Key West Company acquired a pie-making machine for

$50,000. The machine was expected to have a useful life of 10 years with no residual value. Key West uses the straight-line depreciation method. On January 1, 2009, due to technological changes in the bakery industry, Key West believed that the asset might be impaired. Key West estimates the machine will generate net cash flows of $12,000 and has a current fair value of $5,000.

Required:

. What is the book value of the machine on January 1, 2009?

. Compute the loss related to the impairment.

. Prepare the journal entry necessary to record the impairment of the machine.

Exercise