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Habberstad Incorporated purchased equipment for $1900000 in 2025. Four years later accumulated depreciation on the equipment equals $500000. Improved technology on this type of equipment

Habberstad Incorporated purchased equipment for $1900000 in 2025. Four years later accumulated depreciation on the equipment equals $500000. Improved technology on this type of equipment has impaired the value of the equipment. Habberstad plans to continue to use the equipment despite there being new technology available. Future cash flow are estimated to be $1200000. The controller believes the current fair value of the equipment to be approximately $600000.

1. Explain the process GAAP employs to test for impairment of a tangible asset?

2. Assume that after the write-down of equipment, alternative uses for this type of equipment are discovered and the market value of the equipment increases to $900000. Should a journal entry be made to recognize the change in the fair market value of the equipment? Explain your answer.

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