Part 7 of 8 of 6 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. (Click the icon to view additional information.) Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Read the requirements. Requirement a. Compute the carrying value of Cupcakes-R-Us's equipment. The carrying value of the baking equipment at the end of two years is $ 360,000. Requirement 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? Begin by calculating the present value (PV) of estimated future cash flows for Estimate 1. In the following steps, calculate the PV of estimated future cash flows for Estimate 2, and then identify if the present value of the estimated future cash flows is higher or lower than the equipment's carrying value. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round intermediary calculations and your final answers to the nearest whole dollar.) nfo ala e es! 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 - Estimate 1 - Estimate 2 Future Period 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. $ 355,000 $ 365,000 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 th th. nat e tur Requirement 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? Begin by calculating the present value (PV) of estimated future cash flows for Estimate 1. In the following steps, calculate the PV of estimated future cash flows for Estimate 2, and then identify if the present value of the estimated future cash flows is higher or lower than the equipmer's carrying value. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculations. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round intermediary calculations and your final answers to the nearest whole dollar.) Cash-Flow Projection- PV of Cash-Flow Cash Flow Projection- PV of Cash-Flow Projection- Projection- Future Period Estimate 1 Estimate 1 Estimate 2 Estimate 2 Year 1 120,000 $ 111,111 $ 120,000 $ 111,111 Year 2 100,000 85,734 100,000 85,734 Year 3 70,000 55,568 80,000 63,507 Year 4 35,000 25,726 35,000 25,726 Year 5 30,000 20,417 30,000 20,417 355.000 S 298.557 $ 365.000 $ 306.495 Requirement 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. Start with Step 1 of the impairment test. (Complete all input fields.) Step 1: Estimate 1 Estimate 2 Carrying value at year-end $ 360,000+ $ 360,000 Undiscounted future cash flows 355,000 365,000 Impairment indicated? Yes No Now complete Step 2 of the impairment test. For each estimate, select whether Step 2 of the test is required on the first line. If the test is not required, leave all remaining cells in that column blank. (If the test is not required, leave all remaining cells in that column blank. However, if the test is required, but no impairment loss exists, then leave only the impairment loss input cell blank in that column.) Step 2: Step 2 required? Carrying value at year-end Fair value at year-end Impairment loss Estimate 1 Estimate 2 Yes No 360,000 298,557 (61,443) Prepare the journal entry to record any impairment loss indicated. (Record debits first, then credits. Exclude explanations from any journal entries. If no entry is required select "No Entry Required" on the first line of the journal entry table and leave all remaining cells in the table blank.) Begin by preparing the journal entry to record any impairment loss indicated under Estimate 1. Account Date of impairment F e e No Entry Required Accumulated Depreciation-Equipment E Equipment Gain or Sale of Equipment Impairment Loss on Equipment Loss on Sale of Equipment Unrealized Gain on Equipment Unrealized Loss on Equipment imate 2 No ed. (Record debits first, then credits. Exclude lect "No Entry Required" on the first line of the jo loss indicated under Estimate 1. Date of impairment