Off-balance sheet financing is potentially a serious problem as a tool to misstate financial statements. Furthermore, the problem is not likely to be easily resolved with deteriorated ethics in the US corporate world. (Remember balance sheet management and off balance sheet financing are not inherently bad management tools).
1. Under which circumstances would you lease versus purchase? What are the criteria that you would use to make this decision? What is the financial influence of this decision? 2. What are the components of the capital structure? What are the differences of these components? How do you determine the optimal mix of the componen
Prepare journal entries that relate to the balance sheet items above with appropriate backup lead schedules for investments, inventory, fixed assets, and capital leases. Prepare appropriate note disclosures. Jamona Corporation On January 1, 2006, Jamona Corp. purchased 12% bonds, having a maturity value of $300,000, f
LIABILITIES The following items are extracted "in a random order" from the accounting records of MST Corp for the period ended December 31, 2002 Accounts payable 65,600 Accrued Liabilities 11,347 6 % Bonds payable, due Feb 1, 2003 100,000 8% Bonds payable, due June 1, 2003 250,000 Unamortized
1. (Capital Structure) Sanderson Manufacturing Company would like to achieve a capital structure consistent with a Baa2/BBB senior debt rating. Sanderson has identified six comparable firms and calculated the credit statistics shown here. a. Sanderson's return on assets is 5.3%. It has a total capitalization of $600 million.
Scyamore Company is negotiating with a customer for the lease of a large machine, manufactured by Scyamore. The machine has a cash price of $800,000. Syamore wants to be reimbursed for financing the machine at a 12% annual return. Calculate the required lease payment if the lease calls for 10 annual payments with the first pay
Wyndham Stores operates a regional chain of upscale department stores. The company is going to open another store soon in a prosperous and growing suburban area. In discussing how the company can acquire the desired building and other facilities needed to open the new store, Harry Wilson, the company's marketing vice president,
See the attached file. Lease or Buy decision Larine Industries wants an airplane available for use by its corporate staff. The airplane that the company wishes to acquire, a Superjet 25, can either be purchased or leased from the manufacturer. Larine Industries' cost of capital is 20% and the tax rate is 30%. The company has m
See the attached file. 1. Lease A does not contain a bargain purchase option, but the lease term is equal to 90% of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75% of the estimated economic li
1. General Farms, Inc. had sales of $750,000, cost of goods sold of $200,000, selling and administrative expense of $70,000, and operating profit of $150,000. What was the value of depreciation expense? 2. Cassy Beauty Company had sales of $320,000 and cost of goods sold of $112,000. What is the gross profit margin (ratio of g
Suncoast Healthcare is planning to acquire a new x-ray machine that costs $200,000. The business can either lease the machine using an operating lease or buy it using a loan from a local bank. Suncoast's balance sheet prior to acquiring the machine is as follows: Current assets : $100,000 Debt : $400,000
1. On January 1, Year 8, Von Company entered into two non-cancellable leases of new machines for use in its manufacturing operations. The first lease does not contain a bargain purchase option, and the lease term is equal to 80% of the estimated economic life of the machine. The second lease contains a bargain purchase option, a
JK Company has the following balances on the 2008 B/S: current assets=70,000, long-term assets=250,000, current liability=40,000, long-term debt=130,000, and stockholders equity=150,000. The company has an operating lease contract. It promises to pay a lessor $10,000 annually for the next three years. The company s average borro
Koby Co. entered into a capital lease with a vendor for equipment on January 2 for seven years. The equipment has no guaranteed residual value. The lease required Koby to pay 500,000 annually on January 2, beginning with the current year. The present value of an annuity due for seven years was 5.35 at the inception of the lea
Federated fabrications leased a tooling machine on January 1, 2011, for a three-year period ending December 31, 2013. The lease agreement specified annual payment of $36,000 beginning with the first payment at the inception of the lease, and each December 31 through 2012. The company had the option to purchase the machine on Dec
To raise operating funds, Signal Aviation sold an airplane on January 1, 2011, to a finance company for $770,000. Signal immediately leased the plane back for a 13-year period, at which time ownership of the airplane will transfer to Signal. The airplane has a fair value of $800,000. Its cost and its book value were $620,000. I
How can we classify the lease into finance lease or operating lease?
Neighborhood Savings Bank is considering leasing $100,000 worth of computer equipment. A 4 year lease would require payments in advance of $22,000 per year. The bank does not currently pay income taxes and does not expect to have to pay income taxes in the foreseeable future. If the bank purchased the computer equipment,
The manager of a small firm is considering whether to produce a new product that would require leasing some special equipment at a cost of $20,000 per month
1) The manager of a small firm is considering whether to produce a new product that would require leasing some special equipment at a cost of $20,000 per month. In addition to this leasing cost, a production cost of $10 would be incurred for each unit of the product produced. Each unit sold would generate $20 in revenue. Develo
TRIPLE ENTERPRISES INC TRIAL BALANCE Debits Credits Cash $669.51 Accounts Receivable $1,420,530.43 Prepaid Insurance $5,147.72 Allowance for Doubtful Acounts $73,214.87 Inventory - Raw Material $256,364.04 Inventory - Finished Goods $8,350.87 Inventory - WIP $85,542.56
I need some help reviewing the following topics listed. Definitions would be great. Long term Liabilities part#1: - Leases - Off-balance sheet obligation - Long term debt (notes and bond) Long-term Liabilities part#2: - Pensions - Other retirement benefits Long-term liabilities part# 3: - Deferred taxes
Assume that you are preparing to submit a comment to the FASB for the public response to the Leases proposal. Please respond to the following: Formulate a response that addresses the following: Do you agree or disagree that more guidance is needed? State why. Discuss what you support and do not support about the proposal an
Identify the required licenses and permits for your selected business and its scenario. Acquiring Capital Assets: Compare the legal consequences of the buy versus lease decision for the capital assets the business will need, and explain what method is best for your business.
Problem 9-10 Contingent Liabilities Several items are listed for which the outcome of events is unknown at year-end. a. A company offers a two-year warranty on sales of new computers. It believes that 4% of the computers will require repairs. b. The company is involved in a trademark infringement suit. The company's legal exp
Compare and contrast lease versus purchase options, including advantage and disadvantages. How are debt financing and equity financing related to lease and purchase and please give a couple of examples for each? What is an alternative capital structure and its advantages and disadvantages? Which one is better? Please provide you
1. Which of the following statements concerning direct and indirect costs are NOT true? Whether a particular cost is classified as direct or indirect does not depend on the cost object. A direct cost is one that can be easily traced to the particular cost object. The factor manager's salary would be classified as an indir
Using agency theory concepts, explain how restrictive covenants that forbid leases and liens on a firm's assets might cause the firm to achieve a higher rating on its bonds than would be possible without such covenants.
The Uniform Leasing Company currently utilizes a number of outdated database systems. Describe a scenario where it might be beneficial for the uniform leasing company invest in an updated database system. Additonally, -Describe the capabilities, advantages, and disadvantages of newer database systems currently on the mar
A taxpaying entity, has made the decision to purchase a new laser surgical device. The device costs $400,000 and will be depreciated on straight-line basis over five years to a zero salvage value. The entity could borrow the full amount at a 15 percent rate for five years. The after-tax cost of debt equals 9 percent. Alternative
Background Information: The Uniform and Linen Leasing Company (U&L) expansion plans include building a manufacturing facility in a small town in Pell City, Alabama to manufacture cleaning products as well as perform research and development for new products. By locating their facility in this town, U&L will receive substantia