Part A

Charles Company purchased equipment for $1,900,000 in 2023. Four years later, accumulated depreciation on the equipment equals $500,000. Improved technology on this type of equipment has impaired the value of the equipment. Charles plans to continue to use the equipment. Future cash flows are estimated to be $1,200,000. The controller believes the fair value of the equipment to now be worth $600,000,

Required:

1. Explain the process used by GAAP to test for impairment of a tangible asset.
2. What journal entry is needed to record the impairment on this equipment?