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Quick Company acquired a piece of equipment in Year 1 at a cost of $100,000. The equipment has a 10-year estimated life, zero salvage value, and is depreciated on a straight-line basis. Technological innovations take place in the industry in which the company operates in Year 4. Quick gathers the following information for this piece of equipment at the end of Year 4: Expected future undiscounted cash flows from continued use ………………. $59,000 Present value of expected future cash flows from continued use …………….. 51,000 Net selling price in the used equipment market ………………………………. 50,000 At the end of Year 6, it is discovered that the technological innovations related to this equipment are not as effective as first expected. Quick estimates the following for this piece of equipment at the end of Year 6: Expected future undiscounted cash flows from continued use ……………. $50,000 Present value of expected future cash flows from continued use …………. 44,000 Net selling price in the used equipment market …………………………… 42,000 Required: a. Discuss whether Quick Company must conduct an impairment test on this piece of equipment at December 31, Year 4. b. Determine the amount at which Quick Company should carry this piece of equipment on its balance sheet at December 31, Year 4; December 31, Year 5; and December 31, Year 6. Prepare any related journal entries.
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