Problem 1

Presented below is information related to equipment owned by Seager Company at December 31, 2020.

Cost $5,600,000

Accumulated depreciation to date 640,000

Expected future net cash flows 4,000,000

Fair value 2,720,000

Assume that Seager will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 4 years.

Required

1. For Seager company, the recoverability test compares $______ to $______. As a result, the asset ______ the recoverability test, because ______ is/are less than ______ so a ______ on impairment is recorded in 2020.
2. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2020.
3. Prepare the journal entry to record depreciation expense for 2021.
4. The fair value of the equipment at December 31, 2021 is $4,100,000. Prepare the journal entry (if any) necessary to record this increase in fair value.