Question
In: Accounting
Security devices Inc. needs additional office space to accommodate expansion. SDI wants to avoid income statement...
Security devices Inc. needs additional office space to accommodate
expansion. SDI wants to avoid income statement effects that would
disrupt its attempt to “smooth” income over time. Which lease
classification would management prefer? Explain.
Solutions
Expert Solution
Ans: Here since Security devices Inc.’s management does not want to take hit over its income statement hence they should go for Capital lease instead of operating lease, since operating lease are used basically for short term period and here the ownership does not get passed to the lessee it remains with lessor and a regular lease payments has to be made from lessee (Security devices Inc.) towards lessor and this payments has to be considered as operative in nature and thus has to be expensed out in income statement. Thus it will be a hit in income statement.
On the other hand in capital lease, it is basically used for longer period and ownership gets transferred towards the end of the lease period to lessee and also it is realized as debt and bear interests which are expensed out. Interest quantum would be much lower than the regular lease payments hence less impact in income statement. Also the leased assets are booked in assets side and they get the depreciation which is not cash item. In simple term a capital lease is nothing but a purchase of the assets. Hence, it is balance sheet item.
SO here Security devices Inc. should go for capital lease.
ekkarill92 answered 1 year agoRelated Solutions
Security devises Inc. needs additional office space to accommodate expansion. SDI wants to avoid income statement...
Security devises Inc. needs additional office space to
accommodate expansion. SDI wants to avoid income statement effects
that would disrupt its attempt to “smooth” income over time
Question: If SDI used operating lease to avoid "Front-loaded" as
the lessee, but it is not allowed under IFRS Because there are no
operating leases for losses under IFRS
3. Does SDI's reporting objective pose an ethical dilemma?
Why?
4. Who may be affected by SDI's reporting objective? Why?
The income statement, balance sheets, and additional information for Apple Inc are provided. Apple Inc. Income...
The income statement, balance sheets, and additional information
for Apple Inc are provided.
Apple Inc.
Income Statement
For the Year Ended December 31, 2018
Revenues
$2,800,000
Gain on sale of land
4,000
Total revenues
2,804,000
Expenses:
Cost of goods sold
1,900,000
Operating expenses
575,000
Depreciation expense
38,000
Interest expense
16,000
Income tax expense
63,000
Total expenses
2,592,000
Net Income
$212,000
Apple Inc. Balance
Sheets
December 31
Assets
2018
2017
Current Assets:
Cash
$182,000
$187,000
Accounts receivable
83,000
95,000
Inventory
121,000...
The income statement and additional data of Daily ?Plus, Inc.? follows: a. Acquisition of plant assets...
The income statement and additional data of Daily ?Plus, Inc.?
follows:
a.
Acquisition of plant assets is $116,000.
Of this? amount, $106,000 is paid in cash and $10,000 by signing a
note payable.
b.
Cash receipt from sale of land totals $21,000.There was no gain or
loss.
c.
Cash receipts from issuance of common stock total $34,000.
d.
Payment of note payable is $9,000.
e.
Payment of dividends is $12,000.
f.
From the balance? sheet:
September 30
2018
2017
Cash...
The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below. ...
The income statement, balance sheets, and additional information
for Great Adventures, Inc., are provided below.
GREAT ADVENTURES, INC.
Income Statement
For the Year Ended December 31, 2020
Revenues:
Service revenue (clinic, racing,
TEAM)
$ 547,000
Sales revenue (MU watches)
122,000
Total revenues
$ 669,000
Expenses:
Cost of
goods sold (watches)
72,000
Operating
expenses
304,476
Depreciation
expense
52,000
Interest
expense
29,924
Income
tax expense
58,200
Total
expenses
516,600
Net income
$ 152,400...
The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below. ...
The income statement, balance sheets, and additional information
for Great Adventures, Inc., are provided below.
GREAT ADVENTURES, INC.
Income Statement
For the Year Ended December 31, 2020
Revenues:
Service revenue (clinic, racing,
TEAM)
$ 547,000
Sales revenue (MU watches)
122,000
Total revenues
$ 669,000
Expenses:
Cost of
goods sold (watches)
72,000
Operating
expenses
304,476
Depreciation
expense
52,000
Interest
expense
29,924
Income
tax expense
58,200
Total
expenses
516,600
Net income
$ 152,400...
The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below. ...
The income statement, balance sheets, and additional information
for Great Adventures, Inc., are provided below.
GREAT ADVENTURES, INC.
Income Statement
For the Year Ended December 31, 2020
Revenues:
Service revenue (clinic, racing,
TEAM)
$ 555,000
Sales revenue (MU watches)
130,000
Total revenues
$
685,000
Expenses:
Cost of goods
sold (watches)
76,000
Operating
expenses
304,876
Depreciation
expense
56,000
Interest
expense
30,324
Income tax
expense
60,600
Total
expenses
527,800
Net income
$ 157,200...
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Discuss the advantages and disadvantages of raising capital through
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Mackmyra Whisky AB needs additional funds for further expansion. The problem with their business of producing...
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The problem with their business of producing and selling whisky is
a long cash conversion cycle, which means that cash comes in only
9, 12 or 15 years after production due to the long storage time of
the whisky in oak barrels.
Mackmyra AB considers to take a loan of 30 million SEK for the
expansion at a borrowing rate of 3%. However, Mackmyra's new CFO, a
former JIBS student, proposes...
The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below. GREAT...
The income statement, balance sheets, and additional information
for Great Adventures, Inc., are provided below.
GREAT ADVENTURES, INC.
Income Statement
For the year ended December 31, 2022
Net revenues:
$
179,040
Expenses:
Cost of goods sold
$
39,200
Operating expenses
59,940
Depreciation expense
18,300
Interest expense
8,530
Income tax expense
15,200
Total expenses
141,170
Net income
$
37,870
GREAT ADVENTURES, INC.
Balance Sheets
December 31, 2022 and 2021
Increase (I) or
2022
2021
Decrease (D)
Assets
Current assets:
Cash...
The income statement, balance sheets, and additional information for Great Adventures, Inc., are provided below. GREAT...
The income statement, balance sheets, and additional information
for Great Adventures, Inc., are provided below.
GREAT
ADVENTURES, INC.
Income Statement
For the year ended December 31, 2020
Revenues:
Service revenue (clinic, racing,
TEAM)
$543,000
Sales revenue (MU watches)
118,000
Total revenues
$661,000
Expenses:
Cost of goods sold (watches)
70,000
Operating expenses
304,276
Depreciation expense
50,000
Interest expense
29,724
Income tax expense
57,000
Total expenses
511,000
Net income
$150,000
GREAT
ADVENTURES, INC.
Balance Sheets
December 31, 2020 and 2019
2020
2019...
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