Problem #3 (Impairment)

Presented below is information related to equipment owned by Davis Company at December 31,

Assume that Davis will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years.

Instructions

(a) Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017.

(b) Prepare the journal entry to record depreciation expense for 2018.

(c) The fair value of the equipment at December 31, 2018, is $3,825,000. Prepare the journal entry (if any) necessary to record this increase in fair value.

Cost Accumulated depreciation to date Expected future net cash flows Fair value $6,750,000 750,000 5,250,000 3,600,000