At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $22,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $189,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $117,029.) Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided. Round your intermediate calculations to the nearest whole dollar amount.)
  
Required:
1. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.)
2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Café Med (ignore taxes)?
  

At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $32,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $243,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $97,756.). Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 9% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
  
Required:
1. What will be the effect of the lease on Crescent’s earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.)
2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent (ignore taxes)?

At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $30,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $225,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $101,495.). Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 12% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from 2018)
Required:
1. What will be the effect of the lease on Crescent’s earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.)
2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent (ignore taxes)?

1. Effect on earnings

2. Lease receivable balance (end of year)

At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $22,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $189,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $117,029.) Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
  
Required:
1. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)? (Enter decreases with negative numbers)
2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Café Med (ignore taxes)?

(For all requirements, round your intermediate calculations to the nearest whole dollar amount.)

General Mills contracted with Max Grains Corp., to begin supplying them with wheat and other grains for their products. The contract was signed in December 2016 and the first delivery is expected for September 2019. At what time will General Mills acquire an interest in the goods that Max Grains will supply?

Group of answer choices

At the time they are harvested

At the time they entered the contract on December 2016

At the time the goods are shipped or are designated by the seller (Max Grains)

When General Mills select the goods

Exercise 6-17

Siren Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2020, the company incurred the following costs.

Siren Company sells the fishing lures for $26.00. During 2020, the company sold 80,000 lures and produced 94,000 lures.

Prepare a variable costing income statement for 2020.

Prepare an absorption costing income statement for 2020.

KEASER MANUFACTURING WORKING CAPITAL MANAGEMENT

You have recently been hired by Keaser Manufacturing to work in its established treasury department. Keaser Manufacturing is a small company that produces highly customized cardboard boxes in a variety of sizes for different purchasers. Adam Keaser, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company basically puts all receivables in one pile and all payables in another, and a part-time bookkeeper periodically comes in and attacks the piles. Because of this disorganized system, the finance area needs work, and that’s what you’ve been brought in to do.

The company currently has a cash balance of $210,000, and it plans to purchase new machinery in the third quarter at a cost of $390,000. The purchase of the machinery will be made with cash because of the discount offered for a cash purchase. Adam wants to maintain a minimum cash balance of $135,000 to guard against unforeseen contingencies. All of Keaser’s sales to customers and purchases from suppliers are made with credit, and no discounts are offered or taken.

The company had the following sales each quarter of the year just ended:

After some research and discussions with customers, you’re projecting that sales will be 8 percent higher in each quarter next year. Sales for the first quarter of the following year are also expected to grow at 8 percent. You calculate that Keaser currently has an accounts receivable period of 57 days and an accounts receivable balance of $675,000. However, 10 percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely that this portion will never be collected.

You’ve also calculated that Keaser typically orders supplies each quarter in the amount of 50 percent of the next quarter’s projected gross sales, and suppliers are paid in 53 days on average. Wages, taxes, and other costs run about 25 percent of gross sales. The company has a quarterly interest payment of $185,000 on its long-term debt. Finally, the company uses a local bank for its short-term financial needs. It currently pays 1.2 percent per quarter on all short-term borrowing and maintains a money market account that pays .5 percent per quarter on all short-term deposits.

Adam has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs.

Use the numbers given to complete the cash budget and short-term financial plan. Please make the calculations of everything.

1. KEASER MANUFACTURING WORKING CAPITAL MANAGEMENT

You have recently been hired by Keaser Manufacturing to work in its established treasury department. Keaser Manufacturing is a small company that produces highly customized cardboard boxes in a variety of sizes for different purchasers. Adam Keaser, the owner of the company, works primarily in the sales and production areas of the company. Currently, the company basically puts all receivables in one pile and all payables in another, and a part-time bookkeeper periodically comes in and attacks the piles. Because of this disorganized system, the finance area needs work, and that’s what you’ve been brought in to do.

The company currently has a cash balance of $210,000, and it plans to purchase new machinery in the third quarter at a cost of $390,000. The purchase of the machinery will be made with cash because of the discount offered for a cash purchase. Adam wants to maintain a minimum cash balance of $135,000 to guard against unforeseen contingencies. All of Keaser’s sales to customers and purchases from suppliers are made with credit, and no discounts are offered or taken.

The company had the following sales each quarter of the year just ended:

After some research and discussions with customers, you’re projecting that sales will be 8 percent higher in each quarter next year. Sales for the first quarter of the following year are also expected to grow at 8 percent. You calculate that Keaser currently has an accounts receivable period of 57 days and an accounts receivable balance of $675,000. However, 10 percent of the accounts receivable balance is from a company that has just entered bankruptcy, and it is likely that this portion will never be collected.

You’ve also calculated that Keaser typically orders supplies each quarter in the amount of 50 percent of the next quarter’s projected gross sales, and suppliers are paid in 53 days on average. Wages, taxes, and other costs run about 25 percent of gross sales. The company has a quarterly interest payment of $185,000 on its long-term debt. Finally, the company uses a local bank for its short-term financial needs. It currently pays 1.2 percent per quarter on all short-term borrowing and maintains a money market account that pays .5 percent per quarter on all short-term deposits.

Adam has asked you to prepare a cash budget and short-term financial plan for the company under the current policies. He has also asked you to prepare additional plans based on changes in several inputs.

Use the numbers given to complete the cash budget and short-term financial plan.

Zach has been appointed fiscal coordinator for the stanford narcolepsy institute. He has the task of valuing 3M. 3M will pay a dividend of $2.25 next quarter. Zach estimates that the firm will grow at 6% per quarter for 4 years, at 3% per quarter for 3 years, then at 1% per quarter thereafter. The cost of equity is 16% with annual compounding. Find the correct stock price for 3M.