Explain how to treat the difference between the as P12-2. Tangible Asset Impairment. Cupcakes-R-Us, Inc. is reviewing all available information regarding the future use of its baking equipment, which it intends to use for the foreseeable future. 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. Cupcakes-R-Us acquired the equipment 2 years ago at a cost of $500,000 and depreciated it using the straight-line method with an estimated residual value of $10,000 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- Future Period Estimate 1 Estimate 2 Year 1 $120,000 $ 120,000 Year 2 100,000 100,000 Year 3 70,000 80,000 Year 4 35,000 35,000 Year 5 30,000 30,000 Total $355,000 $365,000 Required a. Compute the carrying value of Cupcakes-R-Us's equipment. b. Compute the present value of expected cash flows under Estimate 1 and Estimate 2. Assume that the cost of capital is 8%. 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 Cupcakes-R-Us under Estimate 1 and Estimate 2. If required, prepare the journal entry to record any impairment loss