Requirements

a$.$ ?Compute the carrying value of Cherry on Top's equipment.

b$.$ ?Compute the present value of expected cash flows under Estimate $1$ ?and Estimate $2.$ ?Assume that the cost of capital is $3\%.$ ?For each estimate, is the present value of estimated future cash flows higher or lower than the equipment's carrying value?

c$.$ ?Conduct the impairment tests for Cherry on Top under Estimate $1$ ?and Estimate $2.$ ?If required, prepare the journal entry to record any impairment loss.

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More info The company has observed a decline in the demand for its products. The information also indicates that this equipment may be obsolete and could be impaired. Cherry on Top acquired the equipment 2 years ago at a cost of $712,000 and depreciated it using the straight-line method with an estimated residual value of $12,000 and a 7-year useful life. At the end of the second year, management estimates the following cash flows from the use of the asset: Cash-Flow Projection Cash-Flow Projection Estimate 1 Estimate 2 Future Period Year 1 $ 140,000 140,000 Year 2 110.000 110,000 Year 3 162,000 197,000 Year 4 55.000 55,000 30.000 30,000 Year 5 $ 497.000 $ 532.000 Total The cash expected on the disposal of the asset at the end of its useful life is included in the last cash flow. Assume all cash flows occur at the end of the year. More info The company has observed a decline in the demand for its products. The information also indicates that this equipment may be obsolete and could be impaired. Cherry on Top acquired the equipment 2 years ago at a cost of $712,000 and depreciated it using the straight-line method with an estimated residual value of $12,000 and a 7-year useful life. At the end of the second year, management estimates the following cash flows from the use of the asset: Cash-Flow Projection Cash-Flow Projection Estimate 1 Estimate 2 Future Period Year 1 $ 140,000 140,000 Year 2 110.000 110,000 Year 3 162,000 197,000 Year 4 55.000 55,000 30.000 30,000 Year 5 $ 497.000 $ 532.000 Total The cash expected on the disposal of the asset at the end of its useful life is included in the last cash flow. Assume all cash flows occur at the end of the year.