ou recently hired a young MBA who is advising you that you should grow more aggressively and who is suggesting that you should do so by acquiring other smaller companies. Your cookware and tableware importing business has been quite successful, but you are not sure that this new employee’s plan to acquire a series of cooking/kitchenware stores makes sense. What issues would you raise in discussing this proposal?

Federated Fabrications leased a tooling machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $43,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $52,000 when its fair value was expected to be $67,000 a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor’s implicit rate of return was 10%. (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. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease.
2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term.
3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.

Federated Fabrications leased a tooling machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $30,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $39,000 when its fair value was expected to be $54,000 a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor’s implicit rate of return was 11%. (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. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.

Federated Fabrications leased a tooling machine on January 1, 2018, for a three-year period ending December 31, 2020. The lease agreement specified annual payments of $31,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2019. The company had the option to purchase the machine on December 30, 2020, for $40,000 when its fair value was expected to be $55,000 a sufficient difference that exercise seems reasonably certain. The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor’s implicit rate of return was 11%. (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. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease.
2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term.
3. Prepare the appropriate entries for Federated from the beginning of the lease through the end of the lease term.

Before you started applying for university, a job recruiter offered you a full-time cashier position at a department store earning an after-tax salary of $21,000 per year. However, you turn down this offer and attend your first year of university. The additional monetary cost of university to you, including tuition, supplies, and additional housing expenses, is $32,000.

Krause Company on January 1, 2020, enters into a five-year noncancelable lease for equipment having an estimated useful life of 6 years and a fair value to the lessor, Daly Corp., at the inception of the lease of $4,000,000. The cost to manufacture the equipment was $3,000,000. Daly’s required rate of return is 8%. Krause’s incremental borrowing rate is 10% and is aware of Daly’s required rate of return. Krause uses the straight-line method to amortize its assets. Daly is reasonably confident that Krause will make the lease payments and has no material cost uncertainties.

The lease contains the following provisions:

1. Rental payments of $896,050 are payable at the beginning of each year.
2. A guarantee by Krause Company that Daly Corp. will realize $200,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $120,000.

Round your numbers to the nearest whole numbers.

Required:

1. According to the FASB, how should the lease be classified by both Krause (lessee) and Daly (lessor)? Why?
2. Calculate the present value of lease liability and lease receivable on lease signing date.
3. Prepare lease amortization schedules up to 1/1/2021 for both Krause and Daly
4. Prepare the journal entries to record the inception of the lease and the first lease payment on January 1, 2020 for both Krause and Daly.
5. Prepare all appropriate adjusting journal entries for both Krause and Daly at December 31, 2020.

You want to buy a car which will cost you $10,000. You do not have sufficient funds to purchase the car. You do not expect the price of the car to change in the foreseeable future. You can either save money or borrow money to buy the car.

• Plan 2: You decide to borrow $13,000 from the bank and purchase the car now, as well as cover some other expenses. The bank offers two options for the structure of the repayments.

- Option 1: The first repayment will not start until you graduate from university. Therefore, no month-end-instalments will be made for the first 36 months. Then, commencing at the end of the 37^th month, a total of 30 month-end-instalments of $X will be made over the life of the loan. The nominal interest rate is 6% per annum compounded monthly.

d) Calculate X. (2 mark)

e) Your parents agree to help you repay the loan by contributing a lump sum of $1,800 when you successfully graduate from university. Calculate the new value of X. (1 mark)

- Option 2: For the first 36 months (while you are still studying), you will be making month-end-instalments of $Y. Then, commencing at the end of the 37^th month (when you graduate from university), you will double the amount of monthly repayment for the remaining 30 month-end-instalments. The nominal interest rate is 6% per annum compounded monthly.

f) Calculate the value of Y.

Please tell us about your experience with budgeting. This can be either experience from a work environment or with your personal life. If you've learned anything cool this week that will inform your budgeting practices in the future, please tell us about it.

On January 1, 2018, Pharoah Corporation issued $2,400,000 of 5-year, 9% bonds at 96. The bonds pay interest annually on January 1. By January 1, 2020, the market rate of interest for bonds of risk similar to those of Pharoah Corporation had risen. As a result, the market value of these bonds was $2,130,000 on January 1, 2020—below their carrying value. Joanna Pharoah, president of the company, suggests repurchasing all of these bonds in the open market at the $2,130,000 price. To do so, the company will have to issue $2,130,000 (face value) of new 10-year, 11% bonds at par. The president asks you, as controller, “What is the feasibility of my proposed repurchase plan?”