Question 1
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years, which is also the expected economic life of the copiers. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%. TC uses straight-line depreciation.
Assume that the firm classifies this lease as finance lease. What total expense would TC show on its income statement in fiscal year 2020 as a result from the leased copy machines?
Question 2
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years, which is also the expected economic life of the copiers. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%. TC uses straight-line depreciation.
Assume that the firm classifies this lease as finance lease. What would be the impact of this finance lease on TC’s “Cash Flows from Investing” in its Statement of Cash Flows for the fiscal year 2019?
Question 3
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years, which is also the expected economic life of the copiers. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%. TC uses straight-line depreciation.
Assume that the firm classifies this lease as finance lease. What would be the impact of this finance lease on TC’s “Cash Flows from Operations” in its Statement of Cash Flows for the fiscal year 2021?
Question 4
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years, which is also the expected economic life of the copiers. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%. TC uses straight-line depreciation.
Assume that the firm classifies this lease as finance lease. What would be the balance in the Right of Use – Finance Leases liability on TC’s balance sheet at the end of the fiscal year 2020?
Question 5
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years, which is also the expected economic life of the copiers. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%. TC uses straight-line depreciation.
Assume that the firm classifies this lease as finance lease. What would be the balance in the Right of Use – Finance Leases Asset on TC’s balance sheet at the end of the fiscal year 2020?
Questions 6-10 below relate to Operating Lease classification.
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
Assume that the firm classifies this lease as Operating lease. What would be the balance in the Right of Use – Operating Leases Asset on TC’s balance sheet at the end of the fiscal year 2020?
Question 7
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
Assume that the firm classifies this lease as Operating lease. What would be the total operating lease related expenses that TC would recognize in its income statement for the fiscal year 2020?
Question 8
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
Assume that the firm classifies this lease as Operating lease. What would be the balance in the Right of Use - Operating Lease liability that TC would show in its balance sheet at the end of the fiscal year 2019?
Question 9
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
Assume that the firm classifies this lease as Operating lease. What would be the impact of this operating lease on TC’s “Cash Flows from Operations” in its Statement of Cash Flows for the fiscal year 2019?
Question 10
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
Assume that the firm classifies this lease as Operating lease. What would be the impact of this operating lease on TC’s “Cash Flows from Investing” in its Statement of Cash Flows for the fiscal year 2019?
Question 11
Trifecta Corporation (“TC”) needs three color copy machines. On January 1, 2019, the first day of TC’s 2019 fiscal year, TC signs an agreement with Xerox to lease the three copy machines it selected. The lease’s term is 5 years. The lease calls for payments of $3,500 at the end of each of the 5 years. This lease’s implicit interest rate is 7%.
TC’s CEO is interested in how differences in accounting treatment between operating and capital leases can impact the firm’s financial statements. What is the impact of classifying this lease as a capital lease instead of an operating lease on the firm’s operating cash flows (OCF) section of the statement of cash flows for the year 2019? Capital lease classification would result in an:
Group of answer choices
A) Increase of $3,500 in OCF relative to operating lease classification
B) Increase of $5,540 in OCF relative to operating lease classification
C) Increase of $2,495.45 in OCF relative to operating lease classification
D) decrease of $2,495.45 in OCF relative to operating lease classification
E) Decrease of $3,500 in OCF relative to operating lease classification
Bonds: Questions 12-15 are on bonds
Question 12
On January 1, 2019, KG, Inc. issued 10-year bonds with a par value of $100,000 and bearing a coupon rate of 8% per annum. The coupon is payable semi-annually on June 30 and December 31 of each year. The market interest rate is 10% per annum at the time of the issue. Determine the value of bonds payable that KG, Inc. would show on its balance sheet right after their issue on 1/1/2019.
Question 13
On January 1, 2019, KG, Inc. issued 10-year bonds with a par value of $100,000 and bearing a coupon rate of 8% per annum. The coupon is payable semi-annually on June 30 and December 31 of each year. The market interest rate is 10% per annum at the time of the issue. Determine the value of the contra-liability account (discount on bonds issued) that KG, Inc., would show on its balance sheet on 12/31/2020
Question 14
On January 1, 2019, KG, Inc. issued 10-year bonds with a par value of $100,000 and bearing a coupon rate of 8% per annum. The coupon is payable semi-annually on June 30 and December 31 of each year. The market interest rate is 10% per annum at the time of the issue. Determine the total interest expense that KG, Inc., would recognize in its income statement for the fiscal year ending 12/31/2019.
Question 15
On January 1, 2019, KG, Inc. issued 10-year bonds with a par value of $100,000 and bearing a coupon rate of 8% per annum. The coupon is payable semi-annually on June 30 and December 31 of each year. The market interest rate is 10% per annum at the time of the issue. Determine the total cash flow from operations that KG, Inc., would recognize in its statement of cash flows for the fiscal year ending 12/31/2020.
Zero Coupon Bonds Q 16-20
Question 16
On January 1, 2019, Jane & Co., issued 10-year zero coupon bonds with a par value of $1,000,000. The market interest rate is 10% per annum at the time of the issue, compounded semi-annually. (Hint: That is, the market expects a return of 5% for every six months.) Determine the total cash flow from financing that Jane & Co., would recognize in its statement of cash flows for the fiscal year ending 12/31/2019.
Question 17
On January 1, 2019, Jane & Co., issued 10-year zero coupon bonds with a par value of $1,000,000. The market interest rate is 10% per annum at the time of the issue, compounded semi-annually. (Hint: That is, the market expects a return of 5% for every six months.) Determine the total interest expense that Jane & Co., would recognize in its income statement for the fiscal year ending 12/31/2020.
Question 18
On January 1, 2019, Jane & Co., issued 10-year zero coupon bonds with a par value of $1,000,000. The market interest rate is 10% per annum at the time of the issue, compounded semi-annually. (Hint: That is, the market expects a return of 5% for every six months.) Determine the total cash flow from operations related to this zero-coupon bond that Jane & Co. would recognize in its statement of cash flows for the fiscal year ending 12/31/2020.
Question 19
On January 1, 2019, Jane & Co., issued 10-year zero coupon bonds with a par value of $1,000,000. The market interest rate is 10% per annum at the time of the