(Examining conservatism, LO 4) Anvil Ltd. (Anvil) adheres to GAAP in its financial statements. For each of the following independent situations, explain how Anvil should account for the transaction or economic event. Explain your reasoning. In each case, provide the journal entry that Anvil should prepare.

a. A piece of equipment that was purchased for $25,000 was destroyed during ini- tial installation in an accident. The equipment had not yet been amortized.

b. Inventory with a cost of $100,000 has gone out of style and it will have to be sold at a discount. Management estimates that Anvil will be able to sell the inventory for $60,000.

c. Several years ago Anvil invested $200,000 in the shares of a new technology company. Last year the technology company went public and its shares are now traded on the Toronto Stock Exchange (TSX). Based on the most recent price on the TSX, the market value of Anvil’s shares in the technology company is

$7,000,000. None of the shares have been sold.

d. Several years ago Anvil invested $300,000 in the shares of a biotechnology company. Last week the biotechnology company announced that it was bankrupt and would be liquidating all of its assets and going out of business. Anvil will receive nothing for its shares in the biotechnology company and cannot sell the shares.