Culver Company owns specialized equipment that was purchased in an acquisition of Riding Company. The equipment has a book value of $1,560,000, but according to IFRS it is assessed for impairment on an annual basis. To perform this impairment test, Culver must estimate the fair value of the equipment. It has developed the following cash flow estimates related to the equipment based on internal information. Each cash flow estimate reflects Culver's estimate of annual cash flows over the next 7 years. The equipment is assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.) Year Cash Flow Estimate 1-3 4-6 7 $208,000 316,000 368,000 Culver determines, using its own assumptions, that the appropriate discount rate for this estimation is 6%. What is the estimated fair value of the equipment? (Round answer to O decimal places, eg. 5,275, For calculation purposes, use 5 decimal places as displayed in the foctor toble provided.) Click here to view Table A.2-PRESENT VALUE OF 1-(PRESENT VALUE OF A SINGLE SUM) Click here to view Table A4-PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Estimated fair value of the equipment 1678214

Culver Company owns specialized equipment that was purchased in an acquisition of Riding Company. The equipment has a book value of $1,560,000, but according to IFRS it is assessed for impairment on an annual basis. To perform this impairment test, Culver must estimate the fair value of the equipment. It has developed the following cash flow estimates related to the equipment based on internal information. Each cash flow estimate reflects Culver's estimate of annual cash flows over the next 7 years. The equipment is assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.) Year Cash Flow Estimate 1-3 4-6 7 $208,000 316,000 368,000 Culver determines, using its own assumptions, that the appropriate discount rate for this estimation is 6%. What is the estimated fair value of the equipment? (Round answer to O decimal places, eg. 5,275, For calculation purposes, use 5 decimal places as displayed in the foctor toble provided.) Click here to view Table A.2-PRESENT VALUE OF 1-(PRESENT VALUE OF A SINGLE SUM) Click here to view Table A4-PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Estimated fair value of the equipment 1678214

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Culver Company owns specialized equipment that was purchased in an acquisition of Riding Company. The equipment has a book
value of $1,560,000, but according to IFRS it is assessed for impairment on an annual basis. To perform this impairment test, Culver
must estimate the fair value of the equipment. It has developed the following cash flow estimates related to the equipment based on
internal information. Each cash flow estimate reflects Culver's estimate of annual cash flows over the next 7 years. The equipment is
assumed to have no residual value after the 7 years. (Assume the cash flows occur at the end of each year.)
Year Cash Flow Estimate
1-3
4-6
7
$208,000
316,000
368,000
Culver determines, using its own assumptions, that the appropriate discount rate for this estimation is 6%. What is the estimated fair
value of the equipment? (Round answer to 0 decimal places, eg. 5,275. For calculation purposes, use 5 decimal places as displayed in the
factor table provided.)
Click here to view Table A.2-PRESENT VALUE OF 1-(PRESENT VALUE OF A SINGLE SUM)
Click here to view Table A 4-PRESENT VALUE OF AN ORDINARY ANNUITY OF 1
Estimated fair value of the equipment
$
1678214

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