Presented below is information related to equipment owned by Pina Colada Company at December 31, 2020.
Cost: $8,120,000
Accumulated depreciation to date: $928,000
Expected future net cash flows: $5,800,000
Fair value: $3,944,000
Assume that Pina Colada will continue to use this asset in the future. As of December 31, 2020, the equipment has a remaining useful life of 4 years.
(a)
Fill the missing amounts and choose the correct option.
For Pina Colada company, the recoverability test compares the expected future net cash flows to the book value of the asset. As a result, the asset fails the recoverability test because the expected future net cash flows are less than the book value of the asset, so a loss on impairment is recorded in 2020.