Question: impairment dawg inc uses a special piece of equipment to...
Impairment. Dawg, Inc. uses a special piece of equipment to manufacture it's dog food made from pure alligator. The equipment was purchased in January 2013 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2014, new technology was introduced that would accelerate the obsolescence of the equipment. The company's accountant estimates that expected future net cash flows on the equipment will be $5,000,000 and that the fair value of the equipment is $4,000,000. The company intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Dawg, Inc. uses straight-line depreciation.
(a) What is the carrying value of the asset?
(b) Prepare the journal entry (if any) to record the impairment at December 31, 2014.
(c) Prepare any journal entries for the equipment at December 31, 2015. The fair value of the equipment at December 31, 2015, is estimated to be $4,600,000.
(d) Repeat the requirements for (b) and (c), assuming that Dawg, Inc. intends to dispose of the equipment and that it has not been disposed of as of December 31, 2015.