Capital lease amortization and journal entries. Hughey Co. as lessee records a capital lease of machinery on January 1, 2011. The seven annual lease payments of $350,000 are made at the end of each year. The present value of the lease payments at 10% is $1,704,000. Hughey uses the effective-interest method of amortization and s
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Multiple Choice Questions 1. When considering the risk of a foreign investment, a higher risk might arise from exchange rate risk and political risk while lower risk might result from international diversification. a. True b. False 2. If one Swiss franc can purchase $0.71 U.S. dollars, how many Swiss francs can one U
When a lease payment is made, is the payment split between interest and principal with the interest going to the P & L and the principal being applied to the liability? Or does the entire amount of the lease payment go directly to the P & L?
Reasons and justifications for the extensive use of Off-Balance-Sheet Financing in financial reporting . How does off balance sheet finance exactly work? Give examples. Even though SPE's are legal ways of setting up partnerships, how was the way Enron used them highly unethical? How has IAS 10 IAS37 or other account
1. Note: The following problem requires present value information On January 1, 2006, Price Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for: a. Price to make annual payments of $60,000 at the end of each year (starting Dec. 31, 2006) for five years. Price must r
PART I Love leaves her job as manager of a local restaurant because she wants to start her own restaurant. She finds an ideal location to lease on West Lake Street in the Uptown Area of Minneapolis. All she needs is the initial start up capital to make leasehold improvements, buy the initial inventory of food and beverages, an
What is one of the largest components that a firm does not disclose in off balance-sheet financing?
Match the term with the correct definition Definition A The plan of organization and all the related methods and measures adopted within a business to safeguard its assets and enhance the accuracy and reliability of its accounting records. B Law that forces companies to pay more attention to internal control. C Compan
What criteria must be met by the lease in order that Doherty Company classify it as a capital lease?
Doherty Company leased equipment from Lambert Company. The classification of the lease makes a difference in the amounts reflected on the balance sheet and income statement of both Doherty and Lambert. Required: a) What criteria must be met by the lease in order that Doherty Company classify it as a capital lease? b)
1. Louis leased a building to Pam for five years at a rental of $1,000 per month; Pam deposited $10,000 as security for performance of all her promises in the lease, which was to be retained by Lois in case of any breach on Pamâ??s part. Pam defaulted in the payment of rent for the last two months of the lease. Lois refused to
Prepare a financial analysis for company A in respect to Company B and Company C. Submit the analysis, including relevant charts, diagrams, and graphics. Prepare a financial statement analysis with relevant charts, diagrams, and graphics. Objectives: Develops common size financial statements for use in financial stateme
20-2 The Beranek Company, whose stock price is now $25, needs to raise $20 million in common stock. Underwriters have informed the firm's management that they must price the new issue to the public at $22 per share because of the signaling effects. The underwriters' compensation will be 5% of the issue price, so Beranek will n
You are trying to determine which of two companies is the most profitable. Which of the following would be the best indicator of relative profitability? A) highest net income B) highest retained earnings C) highest return on equity D) highest income from continuing operations 2. Which of the following woul
Problem 7-8 "Winterton Group" The Winterton Group is an investment advisory firm specializing in high-income investors in upstate New York. Winterton has offices in Rochester, Syracuse, and Buffalo. Operating as a profit center each office receives central services, including information technology, marketing, accounting, and p
Should information systems managers delay investment in new technologies until there are substantial demonstrated benefits and the price of the new technologies drops? What are the advantages and disadvantages of being pioneers of new technology within an industry?
1, The Lancer Leasing Company has agreed to lease a hydraulic trencher to the Chavez Excavation Company for $25,000 a year over the next eight years. Lease payments are to be made at the beginning of each year. Assuming that Lancer invests these payments at an annual rate of 10 percent, how much will it have accumulated by end
You are a senior auditor writing a memo to your supervisor, the audit partner in charge of this audit, to discuss the above situation. Be sure to include (a) why you inspected the lease agreement, (b) what you determined about the lease, and (c) how you advised your client to account for this lease. Explain every journal entry that you believe is necessary to record this lease properly on the client's books. (It is also necessary to include the fact that you communicated this information to your client.)
(Operating Lease vs. Capital Lease) You are auditing the December 31, 2006, financial statements of Sarah Shamess, Inc., manufacturer of novelties and party favors. During your inspection of the company garage, you discovered that a 2005 Shirk automobile not listed in the equipment subsidiary ledger is parked in the compa
The lessor can claim the tax deductions associated with asset ownership and realize the leased asset's residual value. In return, the lessor must pay tax on the rental income. a. Explain why a financial lease represents a secured loan in which the lender's entire debt service stream is taxable as ordinary income to the lesso
In the lease versus buy decision, leasing is often preferable a. because it has no effect on the firm's ability to borrow to make other investments. b. because, generally, no down payment is required, and there are no indirect interest costs. c. because lease obligations do not affect the firm's risk as seen by
The following costs result from the production and sale of 2,000 drums sets manufactured by Harris Drum Company for the year ended December 31, 2009. The drum sets sell for $500 each. The company has a 25% income tax rate. 1. Prepare a contribution margin income statement for the company. 2. Compute its contribution marg
Lisa's Boutique is renting prime store space at the Regional Mall and just signed a five-year lease effective January 1 of the current year with the following terms: Refundable security deposit $1,500 Monthly lease payments $3,000 Lease bonus due at signing $18,000 Lisa has had to make sign
1. Quiz Company has a 12 year lease, with payments of $250,000 made at the beginning of each year. If no purchase option exists, and the company is in the 40% tax bracket, what is the annual after-tax cash outflow on the lease? $416,667 $250,000 $150,000 $100,000 2. Contract terms that s
A firm has Total Costs (TC) of $12,000 over the next three months (TOTAL for the 3 months - not per month), of which $6,000 are fixed costs (TFC) for rent on its lease that cannot be broken. If it stays in business over those months, then the firm will collect only $4,000 in revenues (TR). So, considering only this information,
Bensen and Flynn: Lessee-Lessor Entries On January 1, 2008, Bensen Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the noncancelable lease is 6 years, with no renewal option. The equipment reverts to the lessor at the termination of the lease. 2. Equa
1. You sold $100,000 of bonds on the date of issue for $92,278. The bonds have a stated rate of 8% and were sold to yield an effective rate of 10%. The bonds mature in 5 years and pay interest semi-annually on July 1st and January 1st. The discount is amortized on the straight-line method. What would total interest expense b
Attached are readings to further assist you. - Utility Industry of Florida in the United States. - Research various aspects of this industry for tangible and intellectual property issues. - Identify which properties are significant to the industry, what managers in the industry might do to protect an organization's p
January 1, 2007 Nelson Company leases certain property to Queens Company at an annual rental of $60,000 payable in advance at the beginning of each year for 8 years. First payment received immediately. Leased property, which is new cost 275,000 and has an estimated economic life of 8 years and no residual value. Interest rate i
I5-1: The following information is available concerning The Blue Collar Company's payroll for November, 2009: Employee Date of Hire October Year to Date Earnings November Earnings Federal Income Tax Withheld State Income Tax Withheld Z. Allen 1/6/2002 $104,000 $10,600 $3,200 $250 G. Burns 9/1/2009 6,000 3,000 600
HealthPlan Northwest must install a new $1 million computer to track patient records in its three service areas. It plans to use the computer for only three years, at which time a brand new system will be acquired that will handle both billing and patient records. The company can obtain a 10 percent bank loan to buy the comput
Big Sky Hospital plans to obtain a new MRI that costs $1.5 million and has an estimated four-year useful life. It can obtain a bank loan for the entire amount and buy the MRI or it can lease the equipment. Assume that the following facts apply to the decision: - The MRI falls into the three-year class for tax deprecia