ACC 310F Lecture Notes - Lecture 8: Income Statement, Promissory Note, Cash Register

26 views6 pages

peartrout82

23 Apr 2018

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

But is limited to the construction period, not the buildings life. (2) equipment includes assets used in operation. (a) consists of the cash purchase price, sales taxes, freight charges, and insurance during transit paid by the purchaser. (i) But rather than estimate that its life span is 3 years, imagine it is 90k miles driven. And in year 3 (30k-12k-7. 2k) * 40% = 4. 32k (i) (d) so 30k - 12k - 7. 2k - 4. 32k = 6,480. If it were to be multiplied by 40% and subtracted again it would go below the salvage value of 4k so we stop here. 4,000, get 2,480 and divide that over the remaining years; 2. So year 1 = 12k, year 2 = 7. 2k, year 3 = This will decline its revenue producing ability: lesson 4: accounting for maintenance, improvements, and disposal of. Divide that over 4 years, the lifespan left, and year 2 depreciation =

Related Questions

Plastic Co Pte Ltd (‘Plastico’) is a Fiji company. The company has issued and paid up capital of $250,000 held in equal parts by two brothers. The company’s business involves making plastic products for the local market.

The brothers are planning to emigrate to New Zealand and wish to sell the company. An agreement in principle is reached for X to buy the company for $1 million. This is a cash sale.

Presume that you are wealthy and a longtime friend of X.

X comes to see you. She explains that she has in hand $800,000 (from her own savings and bank financing) and is short $200,000 to close the deal. X wants you to loan her $200,000. X has two specific proposals as follows.

Proposal One

Plastico is an old company. When founded it established its factory on the outskirts of Suva. Since that time Suva has grown and spread with the consequence that the land on which the factory stands is today much more valuable than when the factory was built. X has had the land valued at $300,000.

X has found alternative factory premises on the outskirts of modern Suva that would be suitable for the company. These premises are for sale for $100,000.

X proposes that you lend her $200,000 for four months only. X will acquire Plastico. The company’s new directors, X and her husband, will have Plastico sell its current factory and relocate to the premises already identified. The relocation will provide net cash of $200,000. Plastico will then pay a dividend of $200,000. X will use the distribution to repay your loan.

Proposal Two

X proposes that you lend her $200,000. This will be a longer term loan of say 6 years to be paid down incrementally over the life of the loan. Plastico will retain its present factory premises. As security for the loan, Plastico’s new directors, X and her husband, will have Plastico grant you a first mortgage over the current factory premises. Given the valuation placed on the premises the loan will be almost risk free.

Further details of both proposals provide an attractive return for you on the financing.

Required:

Consider each proposal separately and in turn.

Does the proposal offend any of the capital maintenance rules?

[Note ‘agreement in principle’ refers to a situation where two parties have agreed on all the terms of a deal (i.e. contract) but have not yet formally committed to the deal. In this story the parties (X and the two brothers) will only sign the contact document detailing the agreement when X has lined up the required cash of $1 million.]

mauvedinosaur239

Excerpt from the multipage Note 7â¦

The Company is required to provide standby letters of creditto support certain obligations that arise in the ordinary course ofbusiness. Although the letters of credit are an off-balance sheetitem, the majority of obligations to which they relate arereflected as liabilities in the Consolidated Balance Sheet.Outstanding letters of credit totaled $211 million at December 31,2007.

The net book value of the assets pledged as collateral forthe Companyâs secured borrowings, primarily aircraft and engines,was $660 million at December 31, 2007.

As of December 31, 2007, aggregate annual principalmaturities of debt and capital leases (not including amountsassociated with interest rate swap agreements and interest oncapital leases) for the five-year period ending December 31, 2012,were $40 million in 2008, $42 million in 2009, $50 million in 2010,$44 million in 2011, $418 million in 2012, and $1.5 billionthereafter.

included Excerpted from Southwest Airlines, Inc. 10-K for yearended 12/31/2007

2007 2006 inmillions

7 7/8 % Notes due2007 $- -

French Credit Agreements due2012 32 37

6 Â½ % Notes due2012 386 369

5 Â¼ % Notes due2014 352 336

5 Â¾ % Notes due2016 300 300

5 1/8 % Notes due2017 311 300

French Credit Agreements2017 94 100

Pass ThroughCertificates 480 --

7 3/8 % Debentures due2027 103 100

Capital Leases (note8) 52 63

2110 1705

Less Currentmaturities 41 16

Less debt discount and issuancecosts 19 16

$ 2050 1567

Here is a copy of the credit report by Fitch Ratings, Ltd. atSouthwestâs $385 million, 6.5% note issuance, duein 2012:

				Ratings
Maturity Date	Currency	Total Amount	Coupon Rate	Long-term	Short-term	CUSIP	ISIN
01-MAR-2012	USD	$385,000,000	6.5%	A	--	844741AV0	US844741AV08

Here is a price quote on those same Southwest notes atthe date of issuance:

Ratings	Ticker	Description	Coupon	Maturity	YTC/YTM	Price
Baa/A	LUV	Southwest Airls Co	6.500	03-01-2012	7.450	97.29

1-4. What is the value of these notes at the 2007 balance sheetdate? Read the excerpt from

Note 10.

Prior to 2007, the Company had entered into interest rate swapagreements relating to its $385 million 6.5% senior unsecured notesdue 2012 andâ¦ Under each of these interest rate swapagreements, the Company pays the London InterBank Offered Rate(LIBOR) plus a margin every six months on the notional amount ofthe debt [what amounts to the market price of thedebt], and receives payments based on the fixedstated rate of the notes every six months until the date the notesbecome due [this is why it is called aswap]. Under the agreement related to its$385 million 6.5% senior unsecured notes due 2012, the averagefloating rate paid during 2007 is estimated to be 7.31 percentbased on actual and forward rates at December 31, 2007.

The primary objective for the Companyâs use of interest ratehedges is to reduce the volatility of net interest income by bettermatching the repricing of its assets and liabilities. The Companyâsinterest rate swap agreements qualify as fair value hedges, asdefined by SFAS 133. The fair values of the interest rate swapagreements, which are adjusted regularly, are recorded in theConsolidated Balance Sheet, as necessary, with a correspondingadjustment to the carrying value of the long-term debt. The fairvalue of the interest rate swap agreements, excluding accruedinterest, at December 31, 2007, was an asset of approximately $16million and is recorded in âOther deferred liabilitiesâ in theConsolidated Balance Sheet. In accordance with fair value hedging,the offsetting entry is an adjustment to increase the carryingvalue of long-term debt. See Note 7. [we will discuss theaccounting for fair value hedges (and cash flow hedges) inInternational Accounting]

1-5. So what has happened to the general trend of interest ratesbetween the date of issuance and the end of 2007? How can you tell?What was the market rate at issuance for notes of equivalentrisk?

1-6. Why might Southwest pay off these notes back beforematurity? What effect would a repurchase at the 12/31/07 marketrate (ignoring the interest rate swap) have on Southwestâs majorfinancial statements?

pinkporpoise634

Budget Project - Master Budget for a Garneau ManufacturerGarneau Manufacturing Ltd. produces and distributes a special typeof chemical compound called Compound WX. The information belowabout Garneau's operations has been assembled to assist budgetpreparation. The company is preparing its master budget for thefirst quarter of 2016. The budget will detail each monthâs activityand the activity for the quarter in total. The master budget willbe based on the following information:

1. Selling price is $60 per unit in 2015 and will not change forthe first two quarters of 2016. Actual and estimated sales are asfollows:

Actual 2015 Estimated 2016

November: 10 000 units January: 11 000 units

December: 12 000 units February: 10 000 units

March: 13 000 units

April: 11 000 units

May: 10 000 units

2. The company produces enough units each month to meet thatmonthâs sales plus a desired inventory level equal to 20% of nextmonthâs estimated sales. Finished Goods inventory at the end of2015 consisted of 2,200 units at a variable cost of $33 each.

3. The company purchases enough raw materials each month for thecurrent monthâs production requirement and 25% of next month'sproduction requirements. Each unit of product requires 5 kilogramsof raw material at $0.60 per kilogram. There were 13,500 kilogramsof raw materials in inventory at the end of 2015. Garneau pays 40%of raw material purchases in the month of purchase and theremaining 60% in the following month.

4. Each unit of finished product requires 1.25 labour-hours. Theaverage wage rate is $16 per hour.

5. Variable manufacturing overhead is 50% of the direct labourcost.

6. Credit sales are 60% of total sales. The company collects 50%of the credit sales during the first month following the month ofsale and 50% during the second month.

7. Fixed overhead costs (per month) are as follows:

Factory Supervisor's Salary: $75 000

Factory Insurance: $1 400

Factory Rent: $8 000

Deprciation of Factory Equipment: $1 200

8. Total fixed selling and administrative expenses are asfollows:

Advertising: $300

Depreciation: $9 000

Insurance: $250

Salaries: $4 000

Other: $14 550

9. Variable selling and administrative expenses consist of $4for shipping and 10% of sales for commissions.

10.The company will acquire assets for use in the sales officeat a cost of $300,000, which will be paid at the end of January2016. The monthly depreciation expense on the additional capitalassets will be $6,000.

11.The balance sheet as of December 31, 2015, is as follows:

Assets

Cash $80 000

Accounts Recieveable 612 000

Inventory: Raw Matrerials $8 100

add

Finished Goods 72 600 = 80 700

Plant and Equipment 1 000 000

Less: Accumulation Depreciation (100 000) 900 000

Total Assets 1 672 700

Liabilities and Equity

Accounts Payable $24 000

6% Long Term Notes Payable 900 000

Common Shares 735 000

Retained Earnings 13 700

Total Liabilites and Shareholders' Equity 1 672 700

Additional information is as follows:

â¢ All cash payments except purchases of raw materials are mademonthly as incurred.

â¢ All borrowings occur at the beginning of each month, and allrepayments occur at the end of the month. Borrowings and repaymentsmay occur in any amount.

â¢ All interest on borrowed funds is paid at the end of eachmonth at a rate of 0.5% per month.

â¢ A minimum cash balance of $30,000 is required at the end ofeach month.

Required: Prepare the following budgets for each of the firstthree months of 2016:

1. Manufacturing overhead budget.

2. Selling and administrative budget.

3. Cash budget.

coppergerbil405

ACC 310F Lecture Notes - Lecture 8: Income Statement, Promissory Note, Cash Register

Document Summary

Get access

Related Documents

ACC 310F Study Guide - Quiz Guide: Record Plant, Expense, Interest Expense

ACC 310F Study Guide - Quiz Guide: Promissory Note, Cash Register, Historical Cost

ACC 310F Lecture Notes - Lecture 13: Cash Flow, Income Statement

Related Questions