Question
On January 7, 2017 Carniolan Corporation purchased heavy equipment for $970,000. Carniolan depreciates the equipment over 20 years and uses the straight-line method. The equipment
On January 7, 2017 Carniolan Corporation purchased heavy equipment for $970,000. Carniolan depreciates the equipment over 20 years and uses the straight-line method. The equipment will have zero residual value. During the months of October through December 15, 2021 Carniolan collected industry information and gauged competitor behavior. As such, Carniolan believes the asset may be impaired because of technological innovations resulting in new equipment designs being used by competitors in the industry. Carniolan is estimating the equipment will have a remaining useful life of 7 years. But wait, theres more..Carniolan is estimating annual cash inflows from the equipment to be $600,000 and estimated annual cash outflows of $505,000. Carniolan uses a discount rate of 14%. The present value annuity factor for n periods of 7 at 14% is 4.288305.
Required:
Prepare schedules indicating to determine whether, at the end of 2021, the equipment is impaired, and if so, the impairment loss to be recognized with appropriate journal entry. Schedules should be in good form.
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