Chapter 12, Problem 12.3P

Tangible Asset Impairment. Using the same information from P12-2, assume that Cupcakes-R-Us determines that the likelihood of the expected future cash flows under Estimate 1 is 70% and 30% under Estimate 2.

Required

1. a. Compute the carrying value of Cupcakes-R-Us’s equipment
2. b. Compute the expected cash flows given the likelihood of Estimate 1 and Estimate 2. What is the present value of the expected cash flows?
3. c. Conduct the impairment tests for Cupcakes-R-Us using the results from part (b). If Required, prepare the journal entry to record any impairment loss.