olsson company uses special strapping equipment in its packaging 253472

Olsson Company uses special strapping equipment in its packaging business. The equipment was purchased in January 2008 for $8,000,000 and had an estimated useful life of 8 years with no salvage value. At December 31, 2009, new technology was introduced that would accelerate the obsolescence of Olsson’s equipment. Olsson’s controller estimates that expected future net cash flows on the equipment will be $5,300,000 and that the fair value of the equipment is $4,400,000. Olsson intends to continue using the equipment, but it is estimated that the remaining useful life is 4 years. Olsson uses straight-line depreciation.


(a) Prepare the journal entry (if any) to record the impairment at December 31, 2009.

(b) Prepare any journal entries for the equipment at December 31, 2010. The fair value of the equipment at December 31, 2010, is estimated to be $4,600,000.

(c) Repeat the requirements for (a) and (b), assuming that Olsson intends to dispose of the equipment and that it has not been disposed of as of December 31, 2010.

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