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mid2key07f - Econ 136C Midterm #2 Fall 200'? Problem I (40...

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Unformatted text preview: Econ 136C Midterm #2 Fall 200'? Problem I (40 mins) technology, the machine is expected to have a $500,000 residual value which is guaranteed by Alpina the lessee at the end of the lease term. Alpine uses straight-line depreciation and Other terms of the-agreement are as follows: Fair value of machine on 10/1/87 $4,800,000 Machine cost recorded in inventory $4,400,000 Price at purchase option date $2,000,000 Fair market Value at purchase option date $3,000,000 Lease payments (paid October 1) $1,300,000 Implicit interest rate (known to lessee) 10% Contract date/first lease payment 10/ 1/ 87 Date of Alpine purchase option 1011/90 Lease period/economic life - 6 years Incremental borrowing rate 1 1% Fair value of machine at end of lease term $400,000 (4) Indicate in general terms how your lease accounting would change for the lessee if the fair value of themachine on October fl,‘1990 was $2,000,000. Problem II (13 mine) is 40%. Assume warranties are tax deductible when r pairs take place and the estimated percentage doesn’t affect tax deductions. Reguired . Record any entries that are necessary and indicate the changes that will be necessary to James’ Years 2 & 3 comparative financial statements (excluding footnotes) if A)the original estimate is considered reasonable. B) the original estimate is not considered reasonable. Problem III Short Answer (12 mins) 1) Explain theoretically why the retrospective approach is used when encountering a material error in a previous financial statement that has counter-balanced or corrected itself this year. 2) Indicate how sales tax and income tax affect a decision to lease or to buy an asset. 3) Explain why lessees prefer to have leases be operating and lessor prefer to have leases capital and how a lessor might change 'the lease terms to accommodate the lessee’sgwishes without compromising their total cash inflows expected. Mr ‘37 Laksch knu- © southpaw. C/g H‘figh‘eé. tarrawwurb) ~ Oqu. CM ._ a .. 6‘” m.ml’ can g'lflmxaflbsmow my ‘ ' owe. ' @‘("M 0595. ewh (Llamas - 9.4) 732437? I I i w \ 7337* i 2 @464" wrar'CM/s Tint/a) ' firs-7‘5 l 4' W3“ J _. . . . i » 27ml) k7) MM, 37"”? @th/fi W up “mm ' x 5 Now. 13.51: M“ ./‘ \ u . we ‘ /..A __ .W" ~-—- ST own mm c], ll‘laip J ’ " 6) #5 W, s'rLandymr (Lac moot”, ©\ . ., ‘ '3? “W6 “WW/U _ up: ,ny‘" uzpwr Lc memmec, mum)! ‘ Cg I (afil-QIW “Ila-row) ...—-—+—-- .4 9/54, 391mm, { .r _ , .431 ‘ “451% — fibu— ‘ ka. m9 fis‘wl 1“ M g 41% ‘q/‘Jlm NAM” wrh-d‘ 2’0414‘; ® ‘bszsn ) , ~ \ hm, at? 73a?) 8' (‘9 #3051: ‘ > T ' "" “79(9 . m. w 1m”) @ 1””; , ‘ , a ) i 0 (3) | 6) \ooooc: (’9 gm; W‘is (3 _ 00.1090 ‘ woo.) PM Wth/P I \‘ .299. 38516: _._-~._.. _.“,_.____~_-,.‘,.___...~ .. ......‘... _. _ ‘ I 7 Ci) W W M “W M W b Nov «3%.an m mm. LW‘ M b How AFI‘LD) M a) i: .5. ,1) ()va : Ila-zoom )( ’ 2 W ~. 577N991; @ w‘“ "L m?“ X .swq ' “’3‘”? _______._.. 6? <5") .._._‘4°3._’J"'>‘ 4- bo‘m r “nub le‘ D ’1'“ 7 @ vm-L (BMW. 6- Total Points [10] BIS Total Points [14] b) @ Maw 3 fl“ cndk Total Points [16] BIS IIS Total Point [16] FY. BIS None [3] FY 118 None [3] Prior Yr Est Watt Liab 30,000 [5] RIB 30,000 RIE 12,000 [3] DefTax 12,000 PY BIS Est Wart Liab 30,000 1 [2] DefTax 12,0001[2.] PY IIS WarrExp 15,0001 [2]. ITExp 6,000 1 [2] . 0&3 Current Yr 5 ‘___________ Est Warr Liab 15,000 [5] Wart Exp 15,000 Econ 136C -1 Final Solutions IT Exp 6,000 [3] Deferred Taxes 6,000 CY BIS Est Warr Liab 15,000 1 [2] DefTax 6,0001 [2] CYIIS Wan- Exp IT Exp 15,0001 [2] 6,000 1 [2] Current Yr Est Wart Liab 15,000 [5] Watt Exp 15,000 Inc Tax Exp 6,000 [3] Def Taxes 6,000 CYBIS Est Wart Liab 45,000 1 [2] Def Tax 18,000 T [2] CYIIS WarrExp 15,0001 [2] ITExp 6,000 1 [2] Total Problem 1 Points [10 + 14 + 16 + 16 = 56 X 1 = 56 test points] en3¥4L 60X,?: 31" P/wffl/ ’WW @ @ H: 7711 szu/L U M47mr41 T41 MMEA mu. have WWW”; Coagamlr 041E Y5», n Amy/7,, so (A: M”— flfifiwz 0L0 AW NW 77) Gnu/,3 flag/a. m MIL/(17 ru 5:66;??pr ‘ Q , Izmww _ - ............. ......... -/ Ania HM/i Lug FqL®f§564 «mu 7» 05cm: W M/mflm n Lap 01‘. {Jul/(QT (#17)! 77,47) 7" OF ‘19 345.; ) M”‘V‘v ”‘%9 0e AIL, , , Mr FWMu MA gm; than-6 4 WWW“ N Luau. §Msmco~m , ® .1 041461,. .' “MOM evk‘nmu: h b \"5' law- «mg, ,, Q ' " ‘ kwdv’flr . ’ch‘flu “‘V (Baum .‘ ' mm 7749: x:me [’MMAJ > ‘ .9 - C inf—31W “$77 3) Ta 3 wk Fun. . {a I. .» ’1'an Razth . A ¢|1gAh-‘:,JWM WW1) A. 3143: 1: AM: uuwbfimhw ...
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mid2key07f - Econ 136C Midterm #2 Fall 200'? Problem I (40...

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