Recording Purchase of Equipment through Debt and Equity On January 1, 2020, Sidelines Company purchases equipment with an estimated 6-year useful life by making a $28,000 cash payment and issuing a noninterset-bearing note for $96,000 due in two years. The fair value of the the equipment is unknown. An 11% annual interest rate is typical of this transaction. The company uses the effective interest method to amortize interest expense and the straight-line method to estimate depreciation expense. a. Prepare the entry to record the purchase on January 1, 2020. b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. e. Assume instead that Sidelines exchanged 2,000 shares of its own $10 par value common stock along with $28,000 cash for the equipment. At the date of the exchange, the stock was trading on the market at $40 per share. Prepare the entry to record the purchase of equipment. Purchase of Equipment with Debt Purchase of Equipment through Equity a. Prepare the entry to record the purchase on January 1, 2020. Date Account Name Dr. Cr. Jan. 1, 2020 Equipment Answer Answer Answer Answer Answer Cash Answer Answer Answer Answer Answer b. Prepare the entry on December 31, 2020, to record (1) interest expense and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record interest. Dec. 31, 2020 Answer Answer Answer Answer Answer Answer To record depreciation. c. Indicate the balance sheet presentation related to this transaction as of December 31, 2020. Balance Sheet, Dec 31 2020 Assets: Equipment, net Answer Liabilities: Note payable, net Answer d. Prepare the entry on December 31, 2021, to record (1) interest expense and payment of the note and (2) depreciation expense. Date Account Name Dr. Cr. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record interest. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record payment on note. Dec. 31, 2021 Answer Answer Answer Answer Answer Answer To record depreciation.
In: Accounting
Laura Leasing Company signs an agreement on January 1, 2020, to
lease equipment to Kingbird Company. The following information
relates to this agreement.
| 1. | The term of the non-cancelable lease is 3 years with no renewal option. The equipment has an estimated economic life of 5 years. | |
| 2. | The fair value of the asset at January 1, 2020, is $75,000. | |
| 3. | The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $8,000, none of which is guaranteed. | |
| 4. | The agreement requires equal annual rental payments of $23,522.48 to the lessor, beginning on January 1, 2020. | |
| 5. | The lessee’s incremental borrowing rate is 5%. The lessor’s implicit rate is 4% and is unknown to the lessee. | |
| 6. | Kingbird uses the straight-line depreciation method for all equipment. |
Click here to view factor tables.
Prepare all of the journal entries for the lessee for 2020 to
record the lease agreement, the lease payments, and all expenses
related to this lease. Assume the lessee’s annual accounting period
ends on December 31. (For calculation purposes, use 5
decimal places as displayed in the factor table provided and round
answers to 2 decimal places, e.g. 5,265.25. Credit account titles
are automatically indented when the amount is entered. Do not
indent manually. Record journal entries in the order presented in
the problem.)
|
Date |
Account Titles and Explanation |
Debit |
Credit |
|---|---|---|---|
|
1/1/2012/31/20 |
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record the lease on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record the lease) |
|||
|
1/1/2012/31/20 |
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title To record lease liability on January 1 2020 |
enter a debit amount |
enter a credit amount |
|
|
(To record lease liability) |
|||
|
1/1/2012/31/20 |
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
|
|
enter an account title for the journal entry on December 31 2020 |
enter a debit amount |
enter a credit amount |
In: Accounting
(Business
and financial
risk)
Which of the following sources of new earnings volatility demonstrates the effect of business versus financial risk (discuss the rationale for your decisions):
a. Amos Gooding Real Estate Company recently constructed a new office building and borrowed 100 percent of the money needed to fund the project.
b. Clearing House Outsourcing has historically paid a printer to prepare all of its printed documents. However, last year the firm acquired its own printing press (paying cash).
c. Smithers Enterprises has been a specialty retail shop that sells outdoor camping equipment. The firm recently decided to purchase a golf course.
a. Amos Gooding Real Estate Company recently constructed a new office building and borrowed 100 percent of the money needed to fund the project.
The fact that the firm borrowed 100% of the cost of the new investment suggests that the firm's
▼
business
financial
risk has risen. (Select from the drop-down menu.)
b. Clearing House Outsourcing has historically paid a printer to prepare all of its printed documents. However, last year the firm acquired its own printing press (paying cash).
In this instance an outsourcing firm has entered into a new business related to printing. Also, the firm paid cash for the asset acquisition. One might think that the firm's
▼
business
financial
risk may have changed. (Select from the drop-down menu.)
c. Smithers Enterprises has been a specialty retail shop that sells outdoor camping equipment. The firm recently decided to purchase a golf course.
It would appear that this firm may have changed its overall
▼
financial
business
risk since the firm was a specialty retailer and now combines this business with that of a golf course. (Select from the drop-down menu.)
In: Finance
the accountant's Company
Income Statement
For the Year Ended December 31, 2018
Sales $8,500,000
Manufacturing Expenses
Variable $3,250,000
Fixed overhead 640,000 3,890,000
Gross Margin $4,610,000
Selling and administrative expenses
Commissions $580,000
Fixed marketing expenses 300,000
Fixed admin expenses 450,000 1,330,000
Net Operating Income $3,280,000
Fixed Interest expenses 230,000
Income before Taxes $3,050,000
Income Taxes (21%) 640,500
Net Income $2,409,500
Your company is considering out-sourcing the sales and marketing to an agency specializing in these types of sales. The outsourcing would remove the commissions, reduce the marketing by $270,000, and reduce the fixed administrative expenses by $35,000. The out-sourcing firm, Jangler Marketing, will charge a fee of 14% of sales. Jangler requires a 3-year contract. Jangler believes that it can increase sales by 10% for 2019 and 13% each year after (2020 and 2021). The company believes that with its current sales and marketing staff, sales will increase by 8% for 2019 and 9% in each year after (2020 and 2021).
1.Prepare contribution format projected income statements for 2019, 2020 & 202a assuming the company hires Jangler Marketing.
2.Prepare contribution format projected income statements assuming the outsourcing is rejected.
In: Accounting
The ABC Company bought a new machine on October 1, 2014 for $110,000. It planned to keep the truck for four years at which time it expected to sell the truck for $30,000. The company elected to amortize the truck for financial reporting purposes using the declining balance method with an annual rate of 30%. The company has a December 31 year-end and a corporate income tax rate of 40%. For tax reporting purposes, you may pick one of the following:
· The company US-based and is required to determine tax depreciation for reporting to the taxation authority using the MACRS 10-year category, or
· The company is Canadian-based and is required to determine capital cost allowance for reporting to the taxation using a CCA pool rate of 20%.
Calculate the following for both the years 2014 and 2015:
A. The depreciation expense for the truck that would be shown on the company's income statement
B. The amount of tax depreciation (US) or CCA (Canada) that would be claimed, and
C. the change in deferred taxes.
In: Accounting
Depreciation and advance prepayments
Pan Asia Airlines was founded in 1980. Headquartered in Hong Kong, the publicly traded company has routes throughout Asia and to major airports throughout Europe and North America. While Pan Asia charges a premium of 10 to 20% over its competitors, customers have not been deterred from using the airline because of the high quality of service.
A key reason for this reputation for high quality is the company's relatively young fleet of aircraft, with an average age of five years and no plane older than eight years. To maintain a young fleet, Pan Asia replaces its planes regularly to ensure that the planes are equipped with the latest technology and operate efficiently. Other airlines typically have fleets with an average age of 10 years, while discount airlines have even older fleets, with an average age of 15 years. A well-maintained aircraft can last for 20 to 25 years, or even more in some cases.
Each of five regional managers has responsibility for all investment and operating decisions for his/her region. The company evaluates each region as a profit centre. The decentralized structure allows each region to respond quickly to changes in its market.
Financially, the company has been consistently profitable in recent years. Stock analysts have projected a target price that is 20% higher than the current price of $32.50 per share, based on their projections of earnings before interest, taxes, depreciation, amortization (EBITDA). Because of its solid financial performance, Pan Asia has earned a high credit rating, allowing it to borrow at a rate of 6%. Debt currently comprises about 40% of assets, while liquid assets amount to about 10% of assets, which total approximately $2 billion.
It is now February 2012. A new chief executive officer (CEO), William Chan, has been appointed following the retirement of the founding CEO. Chan has a background in mechanical engineering and previously served as Pan Asia's chief operating officer for the past 15 years. While Chan has a thorough understanding of the company's central operations, he is less familiar with other aspects of the company. Consequently, he has spent the last three months reviewing the company's marketing program, human resources, information systems, treasury, as well as accounting.
During this review, Chan has identified a few issues that he would like you, the chief financial officer, to explain to him.
1. The CEO noted that Pan Asia uses the declining-balance method of depreciation. He also noted that many (though not all) competitors use the straight-line method. He wonders whether Pan Asia should consider conforming to the majority in the industry.
2. One of Pan Asia’s manufacturers has recently started a promotion that offers a significant discount to airlines that make advance payments on their aircraft orders. The discount amounts to 15% of the regular price. To obtain the discount, Pan Asia would need to pay in full when it orders a plane, rather than when the manufacturer delivers it. Typically, the amount of time between order and delivery is two years. Chan is unsure whether he should encourage the regional managers to take up this offer. He is also wondering what the effects might be for the financial statements.
Required: Draft a memo to the CEO that addresses the issues raised.
In: Accounting
The Village of Hawksbill issued $4100,000 in 5 percent general obligation, tax-supported bonds on July 1, 2019, at 101. A fiscal agent is not used. Resources for principal and interest payments are to come from the General Fund Interest payment dates are December 31 and June 30. The first of 20 annual principal payments are to made on June 30, 2020. Hawksbill has a calendar fiscal year.
1. A capital projects fund transferred the premium ( in the amount of $ 41,000) to the debt service fund.
2. On December 31, 2019, funds in the amount of $102,500 were received from the General Fund and the first interest payment was made.
3.The books were closed for 2019
4. On June 30, 2020, funds in the amount of $266,500 were received from the General Fund and the second interest payment ($102,500) was made along with principal payment ( $205,000)
5. On December 31, 2020 funs in the amount of $ 97,375 were received from the General Fund and the third interest payment was made ( also in the amount of $ 97,375)
6.the books were closed for 2020
A. Prepare journal entries to record the events above in the debt service fund
B. Prepare a statement of Revenues, Expenditures, and Changes in Fund Balance for the debt service fund for the year ended December 31, 2019
C. Prepare a statement of Revenues, Expenditures, and Changes in Fund Balance for the debt service fund for the year ended December 31 2020
In: Accounting
7. [Calculating firm value with options] SUNNY Inc. has a bond issue with a face value of $1,000 that is coming due in one year. The value of the company’s assets is currently $1,040. Dr. Min, the CEO, believes that the assets in the company will be worth either $940 or $1,270 in a year. The going rate on one-year T-bills is 4.8% i. What is the value of the company’s equity? ii. What is the value of the debt? iii. What is the interest on debt? iv. Suppose the company can reconfigure its existing assets in such a way that the value in a year will be $850 or $1,750. If the current value of the assets is unchanged, will the stockholders favor such a more?
In: Accounting
Writing Assignment - Part I
Choose an example of a Change in Accounting principles. Write a statement paper on how this change would affect the financial statements of a company as they adopt the new principle. Prepare this written statement as if to the Board of Directors of your company.
Writing Assignment - Part II
Your CEO has inquired about the differences between the direct method and the indirect method of presenting the statement of cash flows. Prepare a memo describing the differences and the reasons one presentation may be better than the other for particular companies. Be sure to include a discussion on the non-cash activities included under the operating activities section of the indirect method
In: Accounting
Select an organization of your choice. The organization can refer to a current or past workplace; it could be anonymous (Company X) or you may mention the name. You can also pick an organization you participate in as a customer/client, trustee, stockholder, stakeholder, or interested party.
Identify your role in relation to the company that you pick. The major requirement is that you have access to enough information about the organization to address the question in some detail.
In: Operations Management