### Financial Statement Effects of Leasing vs. Purchasing an Asset: Hack Wellington CompanyTo consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company.Hack Wellington Company needs equipment that will cost the company $560. Hack Wellington Company is considering either purchasing the equipment by borrowing $560 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease.Some data from Hack Wellington Company's current balance sheet prior to the lease or purchase of the equipment are:#### Balance Sheet Data| **(Dollars)** | ||-------------------|------------------|| Current assets | $2,940 || Net fixed assets | $1,260 || **Total assets** | **$4,200** || Debt | $1,680 || Equity | $2,520 || **Total claims** | **$4,200** |#### Questions:1. The company's current debt ratio is _______.2. If the company purchases the equipment by taking a loan, the total debt in the balance sheet will _______ , and the debt ratio will change to _______.3. If the company leases the equipment, the company's debt ratio will _______ because the lease is not capitalized.4. In this case, the company's financial risk will be _______ under a lease agreement as compared to the financial risk in purchasing the equipment by taking a loan.5. However, if the lease is capitalized, the financial risk under the lease agreement will be _______ as compared to the risk in buying the equipment.

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To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company Hack Wellington Company needs equipment that will cost the company $560. Hack Welington Company is considering to either purchase the equipment by borrowing $560 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease. Some data from Hack Wellington Company's current balance sheet prior to the lease or purchase of the equipment are: Balance Sheet Data (Dollars) Current assets $2,940 Debt $1,680 Net fixed assets 1,260 Equity 2,520 Total assets $4,200 Total claims $4,200

To consider the financial statement effects of leasing versus purchasing an asset, review the following case of Hack Wellington Company Hack Wellington Company needs equipment that will cost the company $560. Hack Welington Company is considering to either purchase the equipment by borrowing $560 from a local bank or leasing the equipment. Assume that the lease will be structured as an operating lease. Some data from Hack Wellington Company's current balance sheet prior to the lease or purchase of the equipment are: Balance Sheet Data (Dollars) Current assets $2,940 Debt $1,680 Net fixed assets 1,260 Equity 2,520 Total assets $4,200 Total claims $4,200

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Airway Leasing entered into an agreement to lease aircraft to Ouachita Airlines. Consider each of the following, a–e, to be independent scenarios. a. The agreement calls for ownership of the aircraft to be transferred to Ouachita Airlines at the end of the lease term. b. The fair value of the aircraft is expected to be $500,000 at the end of the lease term. Ouachita has the option to purchase the aircraft at the end of the lease term for $90,000. c. The aircraft has a useful life of 20 years, and the term of the lease is 14 years. d. The present value of the lease payments is $8,900,000 and the fair value of the leased aircraft is $10,000,000. e. The aircraft was manufactured to meet specifications provided by Ouachita to optimize the exclusively regional nature of its flights. Required: 1. In each scenario, indicate whether Ouachita would classify the lease as an operating lease or capital lease under U.S. GAAP. Assume the lease agreement has not met any of the other criteria of a…
A lease is an agreement in which the lessor conveys the right to use an asset for an agreed period of time to the lessee in return for a payment or series of payments (IAS 17.4). Because of rapid changes in technologies, most of the production companies involve in the lease contracts rather than of purchasing new machineries. Being the accounting specialization student, how will you support this? Explain any three advantages of this contract with suitable examples.
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If all of the company’s leases were accounted for as finance leases, then: 1.The company’s net operating asset turnover (i.e., NOA turnover) for the most recent fiscal year would be higher than the amount that we would obtain if we used the reported amounts shown on the company’s income statement and balance sheet. 2.The company’s net operating asset turnover (i.e., NOA turnover) for the most recent fiscal year would be lower than the amount that we would obtain if we used the reported amounts shown on the company’s income statement and balance sheet. 3.The company’s net operating asset turnover (i.e., NOA turnover) for the most recent fiscal year would be the same as the amount that we would obtain if we used the reported amounts shown on the company’s income statement and balance sheet. 4.This question cannot be answered with the information given to me
Discuss the accounting treatment of Finance Leases and Operating Leases. Your discussion must centre on who accounts for the assets and the key principles involved
Vaibhav
Use the same information in above, How much is the rental income to be recognized in the 2012 statement of comprehensive income of the buyer-lessor? a. P600,000 b. P329,272 c. P300,000 d. P270,728
On January 1, 2018, This Co., a lessor, sold an equipment that it had been leasing under direct financing lease. On the same date data relating to sale and lease follow: Sale price - P400,000 Gross lease receivable - 180,000 Unearned interest income - 30,000 Implicit rate - 12% How much is the gain (or loss) on the sale of the leased asset on January 1, 2017?
Find a publicly traded company that has assets under capital lease on its balance sheet. Provide a link to the balance sheet in your post, and explain the details of the leasing transactions based on the amounts and disclosures found in the financial statements. What potential benefits do you think the company expected when choosing to lease, rather than buy, these assets? Do not choose a company that has already been reported on by one of your classmates. Participate in follow-up discussion by critiquing the posts provided by your classmates and defending their challenges to your post. All posts should be grammatically correct and proofread for spelling.
For questions related to the LESSEE (COMPLICATION, INC.), assume that they employ the STRAIGHT-LINE METHOD OF DEPRECIATION. Use the Present Value Factors as is (straight from the calculator, no rounding), round off final answers to the NEAREST WHOLE NUMBER.(1) LEASE LIABILITY ON JANUARY 1, 20X1 (2) RIGHT-OF-USE ASSET ON JANUARY 1, 20X1 (3) TOTAL Finance Income OVER THE LEASE TERM
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