On January 1, 2014. Borstad Company purchased equipment for $1,200,000. It is depreciating the equipment over 25 years using the straight-line method and a zero residual value. Late in 2019 , 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 $282,000 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. Gorstad's discount rate is 12%. Required: 1. Prepare schedules to determine whether, at the end of 2019 , the equipment is impaired and, if so, the impairment loss to be recognized. 2. Prepare the joumal entry to record the impairment. 3. Next Level How would your answer to Requirement 1 change if the discount rate was 16% 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 515,000 each year? 5. Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is 5585,000 and estimates that it would cost $17,000 to sell the equipment. How much would the company recognize as the impaiment loss? Chart of Accounts CHART OF ACCOUNTS Borstad Company General Ledger ASSET S REVENUE 111 Cash 411 Sales Revenue 121 Accounts Receivable 141 Inventory EXPEN SES 185 Equipment 500 Cost of Goods Sold 198 Accumulated Depreciation: Equipment 511 Insurance Expense 512 Utilities Expense LIABILITIES 523 Salaries Expense 211 Accounts Payable 531 Bad debt Expense 221 Notes Payable 532 Depreciation Expense 224 Interest Payable 540 Interest Expense 231 Salaries Payable 891 Loss on Impairment EQUITY 311 Common Stock 331 Retained Earnings 1. Prepare schedules to determine whether, on December 31,2019 , the equipment is impaired and, if so, the impairment loss to be recognized. Enter the Accumulated Depreciation amount as a negative number. Complete the Recoverability Test and detemine the results of the test. The book value is than the undiscounted expected net cash flows so Borstad recognize an impairment loss at December 31, 2019. Complete the Impairment Analysis to detemine the amount of the loss (if any) under US GAAP at December 31,2019 . 2. Prepare the joumal entry on December 31,2019 to record the impaiment. GENERAL JOURNAL Next Level 3. How would your answer to Requirement 1 change if the discount rate was 16% and the cash flows were expected to continue for 6 years? 3. How would your answer to Requirement 1 change if the discount rate was 16% and the cash flows were expected to continue for 6 years? Borstad Company would recognize a loss of if the discount rate was 16% and the cash flows were expected to continue for 6 years. 4. How would your answer change if management pianned to implement efficiencies that would save S15,000 each year? Step 1: Complete the Recoverabivity Test below. Step 2: Complete the following statement regaroling the Recoverabiicty Test resuits. The book value is than the undiscounted net cash flows so Borstad recognize an impairment loss at December 31, 2019. 5. Refer to Requirement 1 and assume that the company uses IFRS. It determines that the fair value of the equipment is \$585,000 and estimates that it would cost $17,000 to sell the equipment. How much would the company recognize as the impairment loss
