Mitten Manufacturing Ltd

2755 Words12 Pages
Overview
Mitten Manufacturing Ltd.’s (MML) sole shareholder and owner, Angela Mitten, has made the decision to sell her ownership in the business in order to be able to retire in the near future.
MML produces children’s mittens and scarves.
Prospective buyer, John Kachurowski, feels that this purchase would result in synergies and economies of scale with his current company that manufactures winter jackets. If this acquisition does go through, it is quite likely that the share price would increase due to the synergy of the merger. Generally, mergers occur for the purpose of improving financial performance for shareholders – making the likelihood of this potential merger ideal.
Angela has offered to sell MML to John for the book value of
…show more content…
This is due to two of the four Capital Lease classification criteria being met, which do not allow for the company to record it as an Operating Lease. The following journal entries should have been entered throughout 2014:
01/01/14:
1) Dr. Lease Equipment 88,000 Cr. Lease Obligation 88,000
2) Dr. Lease Obligation 24,066.26
Cr. Cash 24,066.26
12/31/14:
3) Dr. Interest Expense 3,057.02
Cr. Interest Payable 3,057.02
4) Dr. Amortization Expense 4,400
Cr. Accumulated Amortization 4,400
While there are more incentives to classifying a lease as operating such as tax incentives, higher return on asset, and better solvency ratios, the lease must be classified as a Capital Lease so as to stay in accordance with IFRS. However, a Capital Lease does provide a company with a higher operating cash flow, and reduces Net Income,

More about Mitten Manufacturing Ltd

Get Access