Non-Current Assets and Cash

Project Scenario

As you know, Calliope provides professional education courses. Our top priorities are to offer a low cost product, and exceed market competition and product innovation and customer service.

Our students are busy and need to balance home, work, and other commitments. Through feedback and surveys, we learned that students want courses they can access any time: days, nights, and weekends.
To accommodate this, we recently started offering Internet-based courses. These courses allow our students to learn on their schedule; they are no longer tied to a traditional classroom.

It's important that we respond to our customers, and offer innovative products that suit their needs. In addition, Internet-based education allows us to further enhance revenue and cash flows and tap into an international demand for continuing professional education.

The courses have become very popular...so much so, in fact, that we have higher than anticipated demands for online enrollment and course rollouts. While this is a very positive development for Calliope, it means we have a lot of issues to look at.

Several potential expansion plans are currently being developed and we hope to implement one soon.
This is where your role as a financial analyst comes in. Evelyn Stanfill, our CEO, has requested an overview of how these plans will affect the company's financial statements. We need to see how our balance sheet, income statement, statement of cash flows, and statement of shareholder's equity will be affected by an expansion.
Depending on which expansion method we choose, the financial reports we send to our shareholders next year could look very different.

Once you have finished the overview, I will review your work, then go over it with our vice-president of finance, Connie Esmond. Connie will then present the data to Evelyn.

I hope you're looking forward to this project. We're glad to have your help with this next step in Calliope's development Calliope might need to purchase some of the equipment needed to expand its online course offerings, so you have been asked to examine how the purchase of this equipment, as well as its depreciation, will affect Calliope's accounts and financial statements

Calliope might need to purchase some of the equipment needed to expand its online course offerings, so you have been asked to examine how the purchase of this equipment, as well as its depreciation, will affect Calliope's accounts and financial statements

Step 1

Which are the accounts affected by the purchase of noncurrent assets for cash? (Assume the purchase of equipment.)
Account affected Increase or decrease?

How is the balance sheet affected by the purchase of noncurrent assets for cash? (Assume the purchase of equipment.)
Account affected Increase or decrease?

How is the income statement affected by the purchase of noncurrent assets for cash? (Assume the purchase of equipment.)

Account affected Increase or decrease?

How is the statement of cash flows using the direct method affected by the purchase of noncurrent assets for cash? (Assume the purchase of equipment.)
Investing activities - list event Cash inflow, cash outflow, or no change?

Which accounts are affected when a company depreciates a noncurrent asset? (Assume the asset is equipment.)
Account affected Increase or decrease?

How is the balance sheet affected when a company when a company depreciates a noncurrent asset? (Assume the asset is equipment.)
Account affected Increase or decrease?

How is the income statement affected when a company depreciates a noncurrent asset? (Assume the asset is equipment.)
Account affected Increase or decrease?

How is the statement of cash flows using the direct method affected when a company depreciates a noncurrent asset? (Assume the asset is equipment.)
Operating activities - list event Cash inflow, cash outflow, or no change?

Step 2
Write an e-mail to Jan Waters describing how Calliope's accounts and financial statements will be affected if the company decides to purchase the noncurrent assets needed to expand the business. Your e-mail should answer the following questions:

? Which accounts are affected by purchasing noncurrent assets?
? Which accounts are affected by the utilization of (depreciation) noncurrent assets?
? How are the income statement, balance sheet, and statement of cash flows affected by purchasing noncurrent assets?
? How are the income statement, balance sheet, and statement of cash flows affected by the utilization of noncurrent assets?
? What types of depreciation methods are available for a company to use when recording depreciation? How do these methods differ?