On January 1, 2011, Borstad Company purchased equipment for $1,190,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2016, because of technological changes in the industry and reduced selling prices for its products, Borstad believes that its equipment may be impaired and will have a remaining useful life of 8 years. Borstad estimates that the equipment will produce cash inflows of $390,000 and will incur cash outflows of $276,000 each year for the next 8 years. It is not able to determine the fair value of the equipment based on a current selling price. Borstads discount rate is 10%.

Required:

1.

Prepare schedules to determine whether, at the end of 2016, the equipment is impaired and, if so, the impairment loss to be recognized. Enter the Accumulated Depreciation amount as a negative number.

2.

Prepare the journal entry to record the impairment.

3.

Next Level How would your answer to Requirement 1 change if the discount rate was 14% and the cash flows were expected to continue for 6 years?

4.

Next Level How would your answer change if management planned to implement efficiencies that would save $13,000 each year?

5.

Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is $657,000 and estimates that it would cost $15,000 to sell the equipment. How much would the company recognize as the impairment loss?

CHART OF ACCOUNTS

Borstad Company

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
185	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
221	Notes Payable
224	Interest Payable
231	Salaries Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
523	Salaries Expense
531	Bad debt Expense
532	Depreciation Expense
540	Interest Expense
891	Loss on Impairment