Zeibart Company purchases equipment for $225,000 on July1, 2016, with an estimated useful life of 10 years and expected salvage value of $25,000. Straight-line depreciation is used. On July1, 2020, economic factors cause the fair value of the equipment to decline to $90,000. On this date, Zeibart examines the equipment for impairment and estimates $125,000 in future cash inflows related to use of this equipment.
a. Is the equipment impaired at July1, 2020? Explain.
b. If the equipment is impaired on July1, 2020, compute the impairment loss and prepare a journal entry to record the loss.
c. What amount of depreciation expense would Zeibart record for the 12 months from July1, 2020 through June 30, 2021? Prepare a journal entry to record this depreciation expense.
d. Using the financial statement effects template, show how the entries in parts b and c affect Zeibart Company’s balance sheet and income statement.
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