Question 1
I need help with the questions at the end of this case study Case Study Hardware Leasing Company The Leveraged Lease Prof. Ian Giddy, New York University Spacemakers of Kuwait is the largest independent owner-operator of large-scale automated self-storage complexes in the greater Kuwait City area. The company opened its first self-storage complex in Kuwait in 1994 and now has facilities throughout downtown Kuwait City and nearby residential areas. The business is based on a franchise management company based in Cincinnati, USA. Hamid Lahcen, Chairman and CEO of Spacemakers, was considering options for financing $1 million of new forklifts needed for the commercial storage facilities. Because there was no corporate tax in Kuwait, Spacemakers could not take advantage of the equipment's depreciation tax shield. Hence Lahcen was considering a fifteen year lease of the equipment. The Canadian lessor, Hardware Leasing Co., had offered to structure a capital lease for Spacemakers, as long as Hardware Leasing could arrange non-recourse financing for the equipment. Hardware wished to purchase the forklifts with $200,000 of its own cash and $800,000 borrowed from ABN AMRO Bank in Dubai at 7.5%. The leasing company's effective tax rate was 30%, and Canadian tax laws permit use of the double-declining balance method for leasing companies. The forklifts had a tax life of seven years. Hardware Leasing estimated that it could sell the equipment for $200,000 (the residual value after 15 years). Spacemakers, the lessee, had requested an early buyout option (an "EBO") after ten years. Immediately upon purchase, the lessor would lease the equipment to the lessee for fifteen years. Rents would be paid monthly, on the same day the debt services were due, and the rents always would be sufficient to pay debt service. When Lahcen received a fax summarizing the terms of the lease, he could hardly believe his eyes. The lessor offered Spacemakers a 15-year lease with 180 equal monthly payments of $8,052. This included an effective interest rate of only 6.5% per annum. Not only was the rate very attractive, but Spacemakers would also receive 100% financing with no downpayment. He decided to push his luck and try for the early buyout option. He scribbled "Accepted, as long as we get the EBO!" on the term sheet, signed it, and faxed it back to Toronto. Questions: Show, with a diagram, the cash flows in this deal, assuming no Early Buyout Option. Would the deal make sense for Hardware Leasing, assuming that its shareholders insist on a required return on equity of 15% p.a.?
Question 2
Question 1 (a) On March 1, 2010, Lancelot Company entered into a contract to build an apartment building. It is estimated that the building will cost $2,500,000 and will take 3 years to complete. The contract price was $2,800,000. The following information pertains to the construction period: 2010 2011 2012 Yearly Costs $700,000 $1,100,000 $860,000 Estimated costs to complete 1,800,000 750,000 0 Progress billings to date 1,000,000 2,100,000 2,800,000 Yearly Cash collected 980,000 1,020,000 700,000 Required: (Round percentages to exclude decimal points and round dollar amounts to exclude cents) Assuming the percentage-of-completion revenue recognition method is used. i. Compute the amount of gross profit to be recognized each year (23 points) ii. Prepare all necessary journal entries for 2010, 2011 and 2012. (30 points) iii. Prepare a partial balance sheet for December 31, 2011, showing the balances in the receivables and inventory accounts. (12 points) (b) Assuming that the completed?contract revenue recognition method was used, prepare all necessary journal entries for 2012. (10 points) Question 2 (a) Harvard Company reports pre-tax financial income of $90,000 for 2010. The following items cause taxable income to be different than pre-tax financial income: ? Depreciation on the tax return is greater than depreciation on the income statement by $15,000 ? Rent collected on the tax return is greater than rent earned on the income statement by $28,000 ? Fines for pollution appear as an expense of $10,000 on the income statement Harvard?s tax rate is 40% for all years, and the company expects to report taxable income in all future years. There are no deferred taxes at the beginning of 2010. Required: i. Compute taxable income and income taxes payable for 2010. (14 points) ii. Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2010. (20 points) iii. Prepare the income tax expense section of the income statement for 2010, beginning with the line ?Income before income taxes?. (12 points) iv. Compute the effective income tax rate for 2010. (6 points) (b) For both GAAP and tax purposes, Raymond Incorporated reported the following pre-tax income (loss) for each of the years: Year Pre-tax income Tax Rate 2008 $80,000 35% 2009 100,000 35% 2010 (300,000) 40% 2011 118,000 30% Required: Assuming that the carry back provision is used, prepare the journal entries for years 2008 ? 2011 to record income tax expense (benefit) and income tax payable (refundable), and the tax effects of the loss carry back and loss carry forward. Also assume that it is more likely than not that three-quarters of the benefits of the loss carry forward will not be realized. . (23 points) Question 3 (a) Water Inc has the following balances at 1/1/10 that relate to its defined-benefit pension plan: Projected benefit obligation $700,000 Pension liability 200,000 Accumulated OCI (PSC) 150,000 During 2010, the following additional data is available: Service Cost for 2010 $84,000 Settlement rate 10% Actual return on plan assets in 2010 61,000 Amortization of prior service cost 9,000 Expected return on plan assets 66,000 Unexpected loss from change in projected benefit obligation, due to change in actuarial predictions 86,000 Contributions in 2010 100,000 Benefits paid to retirees in 2010 80,000 Required: i. Compute pension expense for the year 2010 by preparing a pension worksheet. (45 points) ii. Prepare the journal entry for pension expense for 2010. (10 points) (b) George Incorporated has the following balances as of the beginning of each year: Year Plan Assets Pension Asset (Liability) 2010 $1,800,000 $(300,000) 2011 2,400,000 150,000 2012 2,700,000 (260,000) 2013 3,100,000 (900,000) In 2010 there is also a $230,000 opening balance in Accumulated OCI for unrecognized gains. The average remaining service life per employee in 2010, 2011 & 2012 is 20 years each and in 2013 it is 10 years. The net gain or loss that occurred during each year is as follows: Year Gain (Loss) 2010 $(550,000) 2011 (40,000) 2012 (2,000) 2013 40,000 Required: Compute the net gain/loss that is amortized in each of the 4 years above. (20 points),could you have it ready for me today question 2b?
Question 3
Planning for Growth at S&S Air After Chris completed the ratio analysis for S&S Air, Mark and Todd approached him about planning for next year's sales. The company had historically used little planning for investment needs. As a result, the company experienced some challenging times because of cash flow problems. The lack of planning resulted in missed sales, as well as periods when Mark and Todd were unable to draw salaries. To this end, they would like Chris to prepare a financial plan for the next year so the company can begin to address any outside investment requirements. The income statement and balance sheet are shown here: S&S Air, Inc. 2006 Income Statement Sales $ 21,785,300 Cost of goods sold 15,874,700 Other expenses 2,762,500 Depreciation 976,200 EBIT $ 2,171,900 Interest 341,600 Taxable income $ 1,830,300 Taxes (40%) 732,120 Net income $ 1,098,180 Dividends $439,272 Add to retained earnings 658,908 S&S Air, Inc. 2006 Balance Sheet Assets Liabilities and Equity Current assets Current liabilities Cash $ 315,000 Accounts payable $ 635,000 Accounts receivable 506,000 Notes payable 1,450,000 Inventory 740,800 Total current liabilities $ 2,085,000 Total current assets $ 1,561,800 Long-term debt $ 3,800,000 Fixed assets Net plant and equipment $ 11,516,000 Shareholder equity Common stock $ 250,000 Retained earnings 6,942,800 Total equity $ 7,192,800 Total assets $ 13,077,800 Total liabilities and equity $13,077,800 QUESTION: Calculate the internal growth rate adn sustainable growth rate for S&S Air. What do these numbers mean?
Question 4
Hi I have a Couple of questions that I need help answering because i don't know. Please help me. Thank you 13. During the month of February, Hoffer Company had cash receipts of $7,500 and cash disbursements of $8,600. The February 28 cash was $1,800. What was the January 31 beginning cash balance? A. $700. B. $1,100. C. $2,900. D. $0. E. $4,300 14. The following transactions occurred during July: 1. Received $ 900 cash for services provided to a customer during July. 2. Received $ 2,200 cash investment from Barbara Hanson, The owner of the business. 3. Received $ 750 from a customer in partial payment of his account receivable which arose from sales in June. 4. Provided services to a customer on credit, $ 375. 5. Borrowed $ 6,000 from the bank by signing a promissory note. 6. Received $ 1,250 cash from a customer for services to be rendered next year. What was the amount of revenue for July? A. $900. B. $1,275. C. $2,525. D. $3,275. E. $11,100. 3. At the beginning of January of the current year, Thomas law Center?s ledger reflected a normal balance of $ 52,000 for accounts receivable. During January, the company collected $14,800 from customers on account and provided additional services to customers on account totaling $12,500. Additionally, during January one customer paid Thomas $5,000 for services to be provided in the future. At the end of January, the balance in the accounts receivable account should be: A. $54,700. B. $49,700. C. $2,300. D. $54,300. E. $49,300. 4. A company had no office supplies available at the beginning of the year. During the year, the company purchased $ 250 worth office supplies. On December 31, $75 worth of office supplies remained. How much should the company report as office supplies expense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 23. On January 1 a company purchased a five- year insurance policy for $1,800 with coverage starting immediately. If the purchase was recorded in the Prepaid Insurance account, and the company records adjustments only at year-end, the adjusting entry at the end of the first year is: A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800. B. Debit Prepaid Insurance, $1,440; credit Insurance Expense, $ 1,400. C. Debit Prepaid Insurance, $360; credit Insurance Expense, $360. D. Debit Insurance Expense, $360; credit Prepaid Insurance, $360. E. Debit Insurance Expense, $360; credit prepaid Insurance, $1,440. 28. J. Awn, the proprietor of Awn Services, withdrew $8,700 from the business during the current year. The entry to close the withdrawals account at the end of the year, is: A. J. Awn, Withdrawals????????? 8,700 Cash???????????????? 8,700 B. J. Awn, Capital???????????.. 8,700 J. Awn, Withdrawals??????? 8,700 C. J. Awn, Withdrawals????????.. 8,700 J. Awn, Capital???????????. 8,700 D. J. Awn, Capital????????????. 8,700 Salary Expense?????????.. 8,700 E. Income Summary??????????. 8,700 J. Awn, Capital?????????.. 8,700 29. The following information is available for the Travis Travel Agency. After the closing entries what will be the balance in the Jay Travis, Capital account? Total revenues?????????. $125,000 Total expenses????????? 60,000 Jay Travis, Capital???????? 80,000 Jay Travis, Withdrawals????.. 15,000 A. $65,000. B. $80,000. C. $130,000. D. $145,000. E. $280,000. 30. At the beginning of 2009, Beta Company?s balance sheet reported Total Assets of $195,000 and Total Liabilities of $75,000. During 2009, the company reported total revenues of $226,000 and expenses of $175,000. Also, owner withdrawals during 2009 totaled $48,000. Assuming no other changes to owner?s capital, the balance in the owner?s capital account at the end of 2009 would be: A. $174,000. B. $78,000. C. cannot be determined from the information provided. D. $120,000. E. $123,000. 31. A company has sales of $375,000 and its gross profit was $157,500. It cost of goods sold equals: A. $(217,000). B. $375,000. C. $157, 500. D. $217,500. E. $532,500. 33. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is: A. $3,725.00. B. $3,925.00. C. $3,995.00 D. $4,000.50. E. $4,075.00. 34. On October 1, Robinson Company sold merchandise in the amount of $5,800 to Rosser, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robinson uses the perpetual inventory system. The journal entry or entries that Robinson will make on October 1 is: A. Sales 5,800 Accounts receivable 5,800 B. Sales 5,800 Accounts receivable 5,800 Cost of goods sold 4,000 Merchandise Inventory 4,000 C. Accounts receivable 5,800 Sales 5,800 D. Accounts receivable 5,800 Sales 5,800 Cost of goods sold 4,000 Merchandise inventory 4,000 E. Accounts receivable 4,000 Sales 4,000 19. A company made no adjusting entry for accrued and unpaid employee wages of $28,000 on December 31. This oversight would: A. Understate net income by $28,000. B. Overstate net income by $28,000. C. Have no effect on net income. D. Overstate assets by $28,000. E. Understate assets by $28,000.
Question 5
Depreciation Schedule for Year 2009 The year MUST be 2009 even if we are in a future year. Use SL depreciation without partial amounts. "Account Number" Description "Date Placed In Service" "Estimated Useful Life" "Acquisition Cost" "Beginning Accumulated Depreciation" "Current Period Depreciation" "Ending Accumulated Depreciation" "Net Book Value" If I change the year (2009 above) then all of your numbers much change to correct amounts 11001 Desk 04/05/2006 5 $500 Insert functions to finish out the table using Excel to solve for all depreciation items. 11100 Laptop 05/02/2007 5 $2,400 $480 You cannot have a negative net book value 11200 Workstation 03/25/2006 5 $1,900 Description 11050 Chair 02/01/2003 5 $750 Legend of formulas used in this spreadsheet: Software 11500 Software 07/01/2008 4 $750 1 IF Used in column F Laptop 11500 Software 06/30/2007 4 $2,100 2 YEAR Used in column F Monitor 11500 Software 01/31/2005 4 $900 3 SUMIF Used below Workstation 11300 Monitor 02/20/2007 3 $800 Desk 11300 Monitor 09/30/2003 3 $1,200 HINT: You can never have more depreciation in column H than the Acq. Cost in Column E. Chair 11300 Monitor 10/15/2006 3 $600 11001 Desk 04/04/2007 5 $1,000 11001 Desk 08/08/2003 5 $1,500 11050 Chair 06/30/2008 5 $1,250 $250 sum $480 $0 "Asset Names" "New Book Value" Software Insert functions in cells B19-b24 to complete this chart. You must use functions which would change if the year changes Laptop Monitor Workstation Desk Chair List the conditional formatting steps taken. DO NOT USE PASSWORD CONTROLS FOR ANY SHEETS.
