7. Carter Company purchased equipment that manufacturers Kangaroo Boo shoes, in 2014 for $10,000,000 (its fair market value at the time of acquisition). The company has recorded $2,000,000 in depreciation through December 31, 2015. Due to the introduction of a wildly popular competitor, the sales of the Kangaroo Boo shoe are expected to decrease. Carter is projecting future net cash flows for Johnston over the next five years as follows:

2016 - $3,000,000

2017 - $2,000,000

2018 - $1,000,000

No net cash flows are expected after 2018. The fair value of the equipment, based on discounted cash flows at 10% required rate of return is $4,592,000.

a. Is the equipment impaired? Show calculations.

b. If there is an impairment, calculate the impairment and prepare the journal entry to record the impairment.