Question 1

Carver had a large manufacturing asset with an original cost of $500,000 and accumulated depreciation of $170,000 as of January 1, 2015. Carver depreciates the asset using the activity method at $0.50 per unit produced. Over 2015, 40,000 units were produced.

At the end of 2015, decreases in demand prompted Carver to test the asset for impairment. An accounting clerk estimated that the net future cash flows for the asset were $1.40 per unit produced, and future demand for the units was estimated at 200,000 units. The fair value of the asset on December 31, 2015, was $300,000.

Show the journal entries needed to reflect the above information, and show any calculations needed for both steps of the impairment test.