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Can someone explain why the 200,000 is depreciated? I thought the 200k was compared to the carrying amount and than to book the impairment loss you deduct from FV the carrying amount (there is no FV in this problem). I’m having trouble wrapping my head around the concept.
On January 2, Year 1, Reed Co. purchased a machine for $800,000 and established an annual depreciation charge of $100,000 over an eight-year life. During Year 4, after issuing its Year 3 financial statements, Reed concluded that: (1) the machine suffered permanent impairment of its operational value, and (2) $200,000 is a reasonable estimate of the amount expected to be recovered through use of the machine for the period January 1, Year 4, through December 31, Year 8. In Reed’s December 31, Year 4 balance sheet, the machine should be reported at a carrying amount of:
answer: 160,000
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