California Spas recently learned that the value of its building required a write-down because of the discovery that it was on an earthquake fault line.The book value of the building was $1,570,000 before the discovery and the fair value was $975,000 after the discovery.Which of the following is the journal entry used to record the asset impairment?
A) Debit Impairment Loss and credit Accumulated Depreciation for $595,000
B) Debit Depreciation Expense and credit Building for $595,000
C) Debit Impairment Loss and credit Building for $595,000
D) Debit Other Gains and Losses and credit Accumulated Depreciation for $595,000

Question

Quizplus · Accepted Answer

The journal entry used to record the asset impairment is to debit Impairment Loss and credit Building for the amount of the impairment loss, which is $595,000. This reflects a decrease in the value of the building due to the discovery of the earthquake fault line. Option A is incorrect because Accumulated Depreciation is not affected by the impairment, as it is a contra-asset account that reflects the total depreciation charged to an asset over its life. Option B is incorrect because Depreciation Expense is not used to record an asset impairment. Option D is incorrect because Other Gains and Losses is not used to record an asset impairment, and Accumulated Depreciation is not affected by the impairment.

California Spas Recently Learned That the Value of Its Building