cial Accounting & Reporting III ses Part 2, In-class activity #2 ses R Us (LRU) has been approached by New Manufacturing, asking LRU to develop several alternative easing contract for equipment New Manufacturing would like to acquire. ● The equipment has a fair value of $1,300,000 and an expected useful life of 10 years. It will cost L $1,000,000 to acquire the equipment, and LRU expects to also incur $5,000 in initial direct costs. expects to recover the initial direct costs as part of the payments under the lease, and will therefc include that amount in the calculation to determine the lease payment. LRU's required rate of return is 7% for leases where the probable payments equal or exceed the e fair value of the leased asset, and a rate of return of 8% for leases that include unguaranteed resi value. All payments are annual payments that will be due on the first day of the year, beginning on the commencement date.
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- Written report with the following content: • Appendix1: Leasing Explain the calculations. Your recommendations Objective: Should FFT lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use (FFT has these funds available in their bank account today so no mortgage is needed) $ 1,200,000 Taxes, insurance, and repairs (per year) $110,000 Intended years of use 15 Projected market value in 15 years $ 1,250,000 Option 2: Lease Intended years of use 15 Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years) $ 100,000 Annual lease payment $ 160,000 Property taxes (annual) to be paid by FFT $ 15,000 Insurance (annual) to be paid by FFT $ 15,000 Required rate of return 8% Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option…Problem 6. Sales and Leaseback On Januar y 1 20х1, Entity sold building to Entity and a simultaneously leased it back. Additional information follows : Fair value of building 1,000,000 Carrying amount of building 800,000 Remaining useful life of building 10 years Lease Term 5 years Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate 12% The transfer qualifies as a sale. Requirements (Independent cases) : а. If the sales price is P1,000,000 which is equal to fair value compute t he following under the seller-lessee accounting i. Lease liability ii. Right of use Asset iii. Gain or Loss iv. Journal entries on January 1, 20x1 b. If the sales price is P1,000,000 which is equal to fair value compute the following under the buyer-lessor acco unting i. Gross Investment ii. Net Investment iii. Unearned Interest Income iv. Journal entries on January 1, 20x1 c. Same requirements in a and b but the sales price is P1,100,000 which is above the fair value…Mc Graw ill Check my work mode! This shows what is correct or incorrect for the work you have completed so far. It does not indicate completi Exercise 15-41 (Algo) Sale-leaseback [LO Appendix 15] To raise operating funds, Signal Aviation sold an airplane on January 1, 2024, to a finance company for $950,000. Signal immediately leased the plane back for a 12-year period, at which time ownership of the airplane will transfer to Signal. . The airplane has a fair value of $980,000. . Its cost and its book value were $690,000. . Its useful life is estimated to be 14 years. . The lease requires Signal to make payments of $126,750 to the finance company each January 1. Signal depreciates assets on a straight-line basis. . The lease has an implicit rate of 10%. Required: 1. & 2. Prepare the appropriate entries for Signal on January 1, 2024 and December 31, 2024, to record the transaction and necessary adjustments. Note: Round your intermediate and final answers to the nearest whole dollar…
- Appendix One (Construct or lease)Objective: Should WLW lease or construct their own production facilityOption 1: ConstructCosts to incur:Buying land, construct building and getting ready for use$ 360,000Taxes, insurance, and repairs (per year) $ 34,000Intended years of use 20Projected market value in 20 years $ 1,600,000Maximum down payment WLW can make $ 500,000Remainder in four payments of; $ 160,000Revenue opportunityBuilding annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years $60,000Option 2: Lease Intended years of use 20First lease payment due now $ 90,000Rest of the lease payments (years 2-20) $ 90,000Operating costs to be paid by WLWRepairs (annual) $ 9,000Maintenance (annual) $ 26,000Initial one-time deposit, will be returned in year 20$ 40,000Required rate of return 15%Methodology:The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction.Based on the analysis, they will recommend the…Exercise 6-23 (Algo) Income (loss) recognition; Long-term contract; revenue recognition over time vs. upon project completion [LO6-9] Brady Construction Company contracted to build an apartment complex for a price of $6,500,000. Construction began in 2024 and was completed in 2026. The following is a series of independent situations, numbered 1 through 6, involving differing costs for the project. All costs are stated in thousands of dollars. Situation HNm tin v 2 3 4 5 6 Costs Incurred during Year 2024 2025 2026 $ 1,350 $ 1,650 $ 2,580 1,650 3,000 1,650 2,800 650 1,300 650 650 1,350 2,580 3,150 3,150 3,150 2,350 3,300 Estimated Costs to Complete (As of the End of the Year) 2024 2026 2025 $ 1,350 3,000 2,700 950 $ 3,930 3,930 3,930 4,550 4,550 6,055 2,700 3,050 Required: Complete the following table. Note: Do not round intermediate calculations. Enter your answers in whole dollars and not in thousands of dollars (i.e., $400 thousand should be entered as $400,000). Round your final…Apply WACC in IRR. Leeward Sailboats is reviewing the following new boat line: Category T0 T1 T2 T3 Investment −$9,116,807 Net working capital change −$636,000 $636,000 Operating cash flow $2,930,000 $3,413,000 $4,156,000 Salvage $597,000 At what adjusted WACCs will the company accept this project? Hint: Find the IRR of the project, and use it as the maximum adjusted WACC for accepting the project. What is the IRR of the project? (Round to two decimal places.)
- Please indicate the appropriate category of the following items: Question 23 options: Cost of equipment obtained under capital lease Land Goodwill acquired Music Copyrights The cost of developing a patent The cost of purchasing a patent Brand Names Research costs The cost of an annual update of payroll software Goodwill generated internally 1. Intangible Asset 2. Tangible Asset 3. Expense 4. Other (none of the above) 5. Not recorded on financial statementsin X ngagenow.com/ilm/takeAssignment/takeAssignmentMain.do?invoker=&takeAssignmentSessionLocator=&inprogress=false Calculator Print Item Lease or Sell Plymouth Company owns equipment with a cost of $600,000 and accumulated depreciation of $375,000 that can be sold for $300,000, less a 4% sales commission. Alternatively, Plymouth Company can lease the equipment for four years for a total of $320,000, at the end of which there is no residual value. In addition, the repair, insurance, and property tax expense that would be incurred by Plymouth Company on the equipment would total $40,000 over the four-year lease. a. Prepare a differential analysis on August 7 as to whether Plymouth Company should lease (Alternative 1) or sell (Alternative 2) the equipment. Differential Analysis Lease Equipment (Alt. 1) or Sell Equipment (Alt. 2) August 7 Lease Sell Differential Equipment Effects Equipment (Alternative 1) (Arnative 2) (Alternative 2) $ 320,000 Revenues $300,000 600,000 Costs Profit (Loss)…Q/ A contractor purchase an equipment with a delivered price of (750000$) to operate it in one of his projects. He estimate the cost of this equipment according to the following justification - Total interest rate (including bank interest, storage, insurance, .) =15 % Consumption of (oil, fuel, and grease) =(8.25 S/hr) - Cost of maintenance and repair = 60% of the annual straight line depreciation - salvage value = 150000 S Useful life = (10 years) with (1400 hours used per year). a- Determine the probable cost per hour according to the previous justification. b- After (7 years) of operating the equipment, the contractor recorded all the costs of the equipment as shown in the table blow. He notice the increment in the average consumption and maintenance in the last two years (the 6", and 7th years). Calculate the average cost per hour of the equipment for the first five years, according to the salvage value of the equipment at the end of the 5th year = (200000$). Fuel oil Grease…
- A18-5 Depreciation Period: Page 1305 Consider the following independent cases: Case 1 Case 2 Case 3 6 years 5 years 4 years Lease term, including renewals 10 years 7 years 5 years Economic life 8 years 6 years 3 years Useful life No Yes Yes Title transfer expected S10,000 $5,000 $2,000 Residual value Each of the above cases uses straight-line depreciation. Required: For each of the above cases, determine the depreciation term and the residual value used in computing the depreciable amount (original cost less residual value).The acquisition of a used machine with a purchase price of $44,994, requiring an overhaul costing $9,118, installation costs of $4,677, and special acquisition fees of $31,965 would be journalized with a debit to the asset account for Oa. $54,112 0b. 590.754 O c. $136,514 O d. $44,994The acquisition of a used machine with a purchase price of $44,994, requiring an overhaul costing $9,118, installation costs of $4,677, and special acquisition fees of $31,965 would be journalized with a debit to the asset account for Oa. $54,112 0b. 590.754 O c. $136,514 O d. $44,994.Problem 6-22 (Algo) (LO 6-2) On December 31, 2023, Petra Company invests $45,000 in Valery, a variable interest entity. In contractual agreements completed on that date, Petra established itself as the primary beneficiary of Valery. Previously, Petra had no equity interest in Valery. Immediately after Petra's investment, Valery presents the following balance sheet: Cash Marketing software Computer equipment Total assets $ 45,000 165,000 65,000 $ 275,000 Long-term debt Noncontrolling interest Petra equity interest Total liabilities and equity $ 95,000 135,000 45,000 $ 275,000 Each of the amounts represents an assessed fair value at December 31, 2023, except for the marketing software. The December 31 business fair value of Valery is assessed at $180,000. Required: a. If the carrying amount of the marketing software was undervalued by $50,000, what amounts for Valery would appear in Petra's December 31, 2023, consolidated financial statements? b. If the carrying amount of the marketing…