Computing and Assessing Plant Asset Impairment

Zeibart Company purchases equipment for $225,000 on July 1, 2012, with an estimated useful life of 10 years and expected salvage value of $25,000. Straight-line depreciation is used. On July 1, 2016, economic factors cause the market value of the equipment to decline to $90,000. On this date, Zeibart examines the equipment for impairment and estimates $125,000 in future cash inflows related to use of this equipment. a. Is the equipment impaired on July 1, 2016?

b. 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.)