ORIE 350 Lectures - Feb 27, 2008 4) Teledyne Dist. Sell 4...

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4) Teledyne Dist. Sell 4 warehouses for $900,000 Lease them back Warehouse Accum Dep 950,000 350,000 350,000 950,000 0 0 Show Sale Account Dr Cr. Dec 31, 2004 Cash (A) 900,000 Accum Dep. (xA) 350,000 Warehouses 950,000 Deferred Gain 300,000 On Sale/Leaseback 2) OP or Capital? Check List 1) ? OT ? 2) BPO? 3) Lease term > 75% of useful life? Lease term = 10 years 10/10 = 1>.75 Useful life = 10 years YES 4) Don’t care 3) Show Lease Annual Payment of $133,155.32 for 10 years starting December 31, 2004 Single payment today + 9 future payments } “annuity due” PV = 133,155.32 + 133,155.32 [(1-(1+.01)^-9)/.1]=$899,999.98 about 900,000 Account Dr Cr Dec 31, 2004 Leased Assets (A) 900,000 Cash 133,155.32 Lease Obligation (L) 766,844.68 4) Show Dec 31, 2005 entry a. Depreciation 10 years left of useful life 0 SV Annual Depr = 900,000/10 – 0 = $90,000 Dec 31, 2005 Deprec Expense 90,000 Accum Dep 90,000 b. Show payment Interest Expense = i * lease obligation = .1 * 766,844.68 = $76,684.47
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This note was uploaded on 03/11/2008 for the course ORIE 350 taught by Professor Callister during the Spring '08 term at Cornell University (Engineering School).

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ORIE 350 Lectures - Feb 27, 2008 4) Teledyne Dist. Sell 4...

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