Computing and Assessing Plant Asset Impairment

Zeibart Company purchases equipment for $215,000 on July 1, 2012, with an estimated useful life of 10 years and expected salvage value of $21,500. Straight-line depreciation is used. On July 1, 2016, economic factors cause the market value of the equipment to decline to $85,000. On this date, Zeibart examines the equipment for impairment and estimates $115,000 in future cash inflows related to use of this equipment.

a. Is the equipment impaired at July 1, 2016? Yes or No

b. If the equipment is impaired on July 1, 2016, compute the impairment loss and prepare a journal entry to record the loss. If equipment is not impaired, select "N/A" as your Description answers and leave the Debit and Credit answers blank (zero).

c. What amount of depreciation expense would Zeibart record for the 12 months from July 1, 2016 through June 30, 2017? Prepare a journal entry to record this depreciation expense. Round to the nearest dollar. (Hint: Assume no change in salvage value.)

d. Using the financial statement effects template, show how the entries in parts b and c affect Zeibart Companys balance sheet and income statement.

Debit Credit Description Impairment loss Equipment 0 0 0 0 Debit Credit Description Depreciation expense Accumulated depreciation - 0 0 0 0 Income Statement Transaction Balance Sheet Cash Asset + Noncash Assets Contra Assets = Liabilities + Contrib. Capital + Earned Capital $ 0 + $ 0 - $ 0 = $ 0 + $ 0 + $ 0 Net Income b. Impairment charge c. Depreciation expense Revenue Expenses $ 0 - $ 0 = 0 0 + 0 0 = 0 + 0 + 0 0 0 = 0 Debit Credit Description Impairment loss Equipment 0 0 0 0 Debit Credit Description Depreciation expense Accumulated depreciation - 0 0 0 0 Income Statement Transaction Balance Sheet Cash Asset + Noncash Assets Contra Assets = Liabilities + Contrib. Capital + Earned Capital $ 0 + $ 0 - $ 0 = $ 0 + $ 0 + $ 0 Net Income b. Impairment charge c. Depreciation expense Revenue Expenses $ 0 - $ 0 = 0 0 + 0 0 = 0 + 0 + 0 0 0 = 0