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Serjik [45]
3 years ago
11

Rauch Inc. leases a piece of equipment to Donahue Corp. on Jan 1 2017. The lease agreement called for annual rental payments of

$4892 at the beginning of each year of the 4 year lease. The equipment has an economic useful life of 6years, a fair value of $25,000, a book value of $20,000, and both parties expect a residual value of $8,250 at the end of the lease term, though this amount is not guaranteed. Rauch set the lease payments with the intent of earning a 5% return, and Donahue is aware of this rate. There is no bargain purchase option, ownership of the lease does not transfer at the end of the lease term, and the asset is not of a specialized nature.
1. Suppose the instead of $8,250, Rauch expects the residual value at the end of the lease to be $5,000, but Donahue agrees to guarantee a residual value of $8,250. All other facts being eqaul, how would Rauch change the amount of the annual rental payments, if at all?

2. Explain how a fully guaranteed residual value by Donahue would change the accoutning for Rauch, the lessor.

3. Explain how a bargain renewal option for one extra year at the end of the lease term would change the accounting of the lease for Rauch, the lessor.
Business
1 answer:
Eduardwww [97]3 years ago
4 0

Answer:

Explanation:

1. Suppose the instead of $8,250, Rauch expects the residual value at the end of the lease to be $5,000, but Donahue agrees to guarantee a residual value of $8,250. All other facts being eqaul, how would Rauch change the amount of the annual rental payments, if at all?

<em>A lower residual value means the car is expected to hold its value less (depreciate more) over the lease term. </em>

<em>Therefore, since most of the lease payment covers the cost of depreciation., more depreciation (or lower residual value) will most likely result into higher monthly payments over the lease term.</em>

<em />

2. Explain how a fully guaranteed residual value by Donahue would change the accounting for Rauch, the lessor.

<em>The financial accounting term </em><em><u>guaranteed residual value</u></em><em> has to do with an additional payment made by a lessee in property, cash, or both at the termination of the lease. </em>

<em>Therefore since Guaranteed residual values are financial commitments made by the lessee, they are factored into the calculation of the minimum lease payment.</em>

<em />

3. Explain how a bargain renewal option for one extra year at the end of the lease term would change the accounting of the lease for Rauch, the lessor.

<em>A bargain renewal option is a clause in a lease contract that gives the lessee the option of extension of the term of the lease at a substantially lower trate than the going market rate. </em>

<em>The presence of this clause in a lease contract will most likely imply that the lease will change to a finance lease rather than an operating lease</em>

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Soar Incorporated is considering eliminating its mountain bike division, which reported an operating loss for the recent year of
makvit [3.9K]

Answer:

$133,000 decrease

Explanation:

The computation of the impact on the operating income is shown below:

Sales for the year    $1,052,000

Less:

Variable cost -$862,000

Contribution margin $190,000

Less:

Fixed cost for 30% of $190,000   -$57,000

Impact on the operating income $133,000

This amount reflects the decrease in the operating income

5 0
3 years ago
Assume that you have been hired as a consultant by CGT, a major producer of chemicals and plastics, including plastic grocery ba
koban [17]

Answer:

d. 5.14%.

Explanation:

Calculation to determine the best estimate of the after-tax cost of debt.

First step

Based on the information given we would make use of rate formula in excel.

=rate(nper,pmt,-pv,fv)

Where,

nper= coupon every six months for 20 years = 40 coupon payments

Pmt =$1000*7.25%*6/12=$36.25

Pv = $875

Fv =$1000

Let plug in the formula

=rate(40,36.25,-875,1000)=4.28% semiannually

=4.28% *2=8.56% annually

Now let calculate the after tax cost of debt using this formula

After tax cost of debt=8.56%*(1-t)

Where,

t represent tax rate of 40%

Let plug in the formula

After tax cost of debt=8.56%*(1-0.4)

After tax cost of debt=5.14%

Therefore the best estimate of the after-tax cost of debt is 5.14%

8 0
3 years ago
Pastina Company sells various types of pasta to grocery chains as private label brands. The company's reporting year-end is Dece
Lyrx [107]

Answer:

Adjusting entries

Depreciation on the office equipment for the year is $10,300.

Dr Depreciation expense 10,300

    Cr Accumulated depreciation 10,300

Employee salaries are paid twice a month, on the 22nd for salaries earned from the 1st through the 15th, and on the 7th of the following month for salaries earned from the 16th through the end of the month. Salaries earned from December 16 through December 31, 2021, were $900.

Dr Wages expense 900

    Cr Wages payable 900

On October 1, 2021, Pastina borrowed $50,600 from a local bank and signed a note. The note requires interest to be paid annually on September 30 at 12%. The principal is due in 10 years.

Dr Interest expense 1,518

    Cr Interest payable 1,518

On March 1, 2021, the company lent a supplier $20,600 and a note was signed requiring principal and interest at 8% to be paid on February 28, 2022.

Dr Interest receivable 1,373

    Cr Interest revenue 1,373

On April 1, 2021, the company paid an insurance company $6,600 for a two-year fire insurance policy. The entire $6,600 was debited to prepaid insurance.

Dr Insurance expense 2,475

    Cr Prepaid insurance 2,475

$560 of supplies remained on hand at December 31, 2021.

Dr Supplies expense 1,240

    Cr Supplies 1,240

A customer paid Pastina $2,300 in December for 900 pounds of spaghetti to be delivered in January 2022. Pastina credited deferred sales revenue.

No entry is required

On December 1, 2021, $1,200 rent was paid to the owner of the building. The payment represented rent for December 2021 and January 2022 at $600 per month. The entire amount was debited to prepaid rent.

Dr Rent expense 600

    Cr Prepaid rent 600

             Pastina Company

             Income Statement

For the Year Ended December 31, 2021

Sales revenue $149,000

Interest revenue $1,373

Cost of goods sold -$73,000

Salaries expense -$20,100

Rent expense -$11,900

Depreciation expense -$10,300

Interest expense -$1,518

Supplies expense -$2,640

Insurance expense -$2,475

Advertising expense -$3,300

Net income = $25,140

             Pastina Company

               Balance Sheet

For the Year Ended December 31, 2021

Assets

Current assets:

Cash $32,000

Accounts receivable $40,600

Supplies $560

Inventory $60,600

Notes receivable $20,600

Interest receivable $1,373

Prepaid rent $600

Prepaid insurance $4,125

Total current assets: $160,458

Non-current assets:

Office equipment $82,400

Accumulated depreciation $41,200

Total non-current assets: $41,200

Total assets: $201,658

Liabilities and stockholders' equity

Current liabilities:

Accounts payable $31,600

Wages payable $900

Interest payable $1,518

Deferred sales revenue $2,300

Total current liabilities: $36,318

Long term debt:

Notes payable $50,600

Total long term debt: $50,600

Total liabilities: $86,918

Stockholders' equity:

Common stock $64,200

Retained earnings $50,540

Total stockholders' equity: $114,740

Total liabilities and stockholders' equity: $201,658

retained earnings = previous balance + net income - dividends = $30,000 + $25,140 - $4,600 = $50,540

                          Pastina Company

             Statement of Shareholders’ Equity

          For the Year Ended December 31, 2021

Balance on January 1: Common stock            $64,200

Balance on January 1: Retained earnings       $30,000

Net income 2021                                                $25,140

- Dividends                                                         ($4,600)

Subtotal                                                              $50,540

Balance on December 31: Common stock      $64,200

Balance on December 31: Retained earnings $50,540

6 0
3 years ago
In its third year, a project is expected to generate earnings before interest, taxes, depreciation, and amortization of $283,104
Lesechka [4]

Answer:

$195,751

Explanation:

Calculation for the project's expected operating cash flow

The first step will be to find the EBIT

using this formula

EBIT =(Earnings before interest, taxes, depreciation, and amortization -Depreciation expense)

Let plug in the formula

EBIT= 283,104 - 53,228

EBIT= 229,876

Second step is to find the NOPAT using this formula

NOPAT = EBIT(1- tax rate)

NOPAT= 229,876(1 - 0.38)

NOPAT= 142,523

Last step is to calculate for Expected Operating Cash flow

Using this formula

Operating cash flow = NOPAT + Depreciation expenses

Let plug in the formula

Operating cash flow = 142,523 + 53,228

Operating cash flow = $195,751

Therefore the project's expected operating cash flow will be $195,751

3 0
3 years ago
Seller Vincent decided to let the listing agreement he had with broker Bob expire and sell the property himself. Prospective buy
ZanzabumX [31]

Yes, Bob does retain interest in this transaction as he registered under safeguard terms. because the protection clause suggest:-

A former agent is additionally obligated to the buyer registered under the protection provision in the listing agreement if the seller is shown the property by an agent within the listing term as the listing expires. The seller will still be required to pay the agent's fee if a protected buyer tries to make a direct purchase from them while the protection period is still in effect.

<h3><u>What is the purpose of a protection clause?</u></h3>
  • A safety protection provision is intended to guarantee that a broker gets paid fairly for their services and to prohibit buyers' and sellers' collusion.
  • A contingency known as a broker protection clause, sometimes known as a safety clause or extension clause, is present in listing agent contracts. This provision states that in some circumstances, even if the house sells after their listing has expired, the seller will pay the listing agent commission fees.

To know more about protection clause, check the given links.

brainly.com/question/25079139

brainly.com/question/2252772

#SPJ4

7 0
2 years ago
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