### 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

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter19: Lease Financing

Section: Chapter Questions

Problem 1P: Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the...

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Reynolds Construction (RC) needs a piece of equipment that costs 200. RC can either lease the equipment or borrow 200 from a local bank and buy the equipment. Reynoldss balance sheet prior to the acquisition of the equipment is as follows: a. (1) What is RCs current debt ratio? (2) What would be the companys debt ratio if it purchased the equipment? (3) What would be the debt ratio if the equipment were leased and the lease not capitalized? (4) What would be the debt ratio if the equipment were leased and the lease were capitalized? Assume that the present value of the lease payments is equal to the cost of the equipment. b. Would the companys financial risk be different under the leasing and purchasing alternatives?
Part ILynbrook, Inc. is considering leasing a CAT Scan machine for its operations. As the Controller of Lynbrook, you have been asked to provide management with the lease information related to the CAT Scan. Lynbrook is considering leasing the machine from Capital Leasing, who in turn purchased the machine from the manufacturer, ScanHouse Corp. for $1,000,000. Required:Round your answers to the nearest whole dollar amounts.1. How should this lease be classified by Lynbrook and by Capital Leasing?2. Prepare appropriate entries for both Lynbrook and Capital Leasing from the beginning of the lease through the second rental payment on April 1, 2020. Depreciation and amortization are recorded at the end of each fiscal year (December 31).3. Assume Lynbrook leased the machine directly from the manufacturer, ScanHouse Corp., which produced the machine at a cost of $800,000. Prepare appropriate entries for ScanHouse from the beginning of the lease through the second rental payment on April 1,…
Which of the statements is most correct? Select one: a. Some years ago leasing was called "off balance sheet financing" because the leased asset and the corresponding lease obligation did not appear directly on the balance sheet. Today, though, the situation has changed materially because all types of lease must be capitalized and reported on the balance sheet, along with the value of the leased asset. O b. In a lease-versus-purchase analysis, cash flows should generally be discounted at the WACC. O . Each of the statements is true. O d. Each of the statements is false.
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.
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ACCOUNTING FOR INVESTMENT PROPERTY.PROBLEM 2. PLEASE ANSWER AND SHOW SOLUTION
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Assume that Schindler Builders leases medical equipment from Saint Michael's Machine Company. (Click the icon to view the terms of the lease.) Requirement a. Determine the lessee's initial measurement of the lease liability and the right-of-use asset. Note that the initial measurement is the same for both operating and finance leases. Before completing the requirement, identify the present value of the lease payments. (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answer to the nearest whole dollar.) The present value (PV) of the payments due under the lease is Now determine the balance of the right-of-use asset. (If an input field is not used in the table leave the input field empty, do not select a label or enter a zero.) Add: Add: Subtract: Subtract: Initial…