write a memorandum explaining the impact of the capital purchases (and related sales of some existing fixed assets) on each of the following financial statments; Income Statement, Balance Sheet, Statement of Cash Flows.
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Sweets Inc. made several capital purchases during the last month of the year. As part of the purchases the company sold some existing fixed assets.
Yesterday, as you were walking to the compnay cafeteria, you saw the President of Sweets Inc. While walking the President you mentioned the recent capital purchases would significantly impact the financial statments.
Today, the President called you directly and asked you to write a memorandum explaining the impact of the capital purchases (and related sales of some existing fixed assets) on each of the following financial statments; Income Statement, Balance Sheet, Statement of Cash Flows.
Summary of December Capital Transactions
On Dec 1, 2021 Sweets Inc purchased a new delivert truck for $100,000
The following additional information was provided:
- The truck was paid for with cash.
- The truck is expected to have a service life of 10 years.
- No salvage value is expected after the service life.
- The company uses straight line
depreciation for their financial reporting
On Dec 1, 2021 Sweets Inc purchased equipment for the new production line at the Iowa Plant. The cost of the equipment was $1,500,000
The following additional information was provided:
- The equipment was paid for with cash.
- The equipment has an expected service life of 20 years
- Salvage value at the end of the service life is estimated to be $150,000
- The company uses straight-line depreciation for their financial reporting.
- The equipment was installed in Dec 15, 2021. The instalaltion cost was $50,000
- Trial runs were also completed on Dec 15, 2021. The cost of the trial runs was $10,000
On Dec 31, 2021 Sweets Inc. sold and old delivery truck to a local farmer for $5,000
The following additional information was provided:
- The farmer paid Sweets Inc. the full amoun in cash on Dec 31.
- The old delivery truck was on the book as follows:
- Equipment-Delivery Truck $50,000
Accumulated Depreciation -Equipment-Delivery Truck $50,000
On Dec 31, 2021 Sweets Inc. sold production equipment to a small candy manufacturer in Vermont for $40,000
The following additional information was provided:
- The small candy manufacturer offered a not in a payment. The note is an agreement to pay Sweets Inc. $50,000 on June 30,2022
- The production equipment was on the books as follows:
- Equiment $200,000
- Accumulated Depreciation-Equipment $185,000
Note:
The President is not an acountant. Your memorandum needs to walk the President from the accounting detail to the big picture.
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