Question

Presented below is information related to copyrights owned by Oriole Company at December 31, 2020.
Cost $8,520,000
Carrying amount 4,410,000
Expected future net cash flows 3,910,000
Fair value 3,320,000
Assume that Oriole Company will continue to use this copyright in the future. As of December 31, 2020, the copyright is estimated to have a remaining useful life of 10 years.
Prepare the journal entry to record the impairment of the asset at December 31, 2020. The company does not use accumulated amortization accounts

Answer 1

Answer:

Explanation:

Date              Accounts titles and Explanation      Debit         Credit

Dec 31, 2020  Loss on Impairment                 1,090,000  

                       Copyrights                                                        1,090,000

                      (To record the loss on impairment of copyrights)

Dec 31, 2021    Amortization expense                   332,000  

                       Copyrights                                                           332,000

                       (To record the amortization on copyrights)

Dec 31, 2021     No entry  

Explanation

1. Loss on Impairment = Carrying value - Fair value

= $4,410,000 - $3,320,000 = $1,090,000

2. Amortization expense = (Carrying amount - Loss on impairment) / Useful Life

= ($4,410,000 - $1,090,000) / 10 years = $332,000