Castello's Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2015 for $10,000,000 and had an estimated useful life of 10 years with no salvage value. At December 31, 2019, new technology was introduced that would accelerate the obsolescence of the equipment. Raiders' controller estimates that expected future net cash flows on the equipment will be $4,500,000 and that the fair value of the equipment is $3,300,000. Raiders intends to continue using the equipment, but it is estimated that the remaining useful life is 3 years and no salvage value. Raiders uses straight-line depreciation.

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Assume the depreciation has been recorded for 2019.

(explain the reasoning for all your decisions.)

Instructions

1. Prepare the journal entry (if any) to record the impairment at December 31, 2019
2. Prepare the journal entries for the depreciation of equipment at December 31, 2020.
3. The fair value of the equipment at December 31, 2020, is estimated to be $3,400,000.Prepare journal entries, if any, to record the restoration of loss.
4. Assume that Castello's intends to dispose of the equipment:

Prepare the journal entries (if any) at December 31, 2020 to record its depreciation and restoration of loss.The fair value of the equipment at December 31, 2020, is estimated to be $3,400,000