John Rawls A Theory of Justice Essay -- Politics Political Essays

John Rawls A scheme of JusticeJohn Rawls A Theory of Justice has long been revered as a marvel of upstart political philosophy. Its most well-known for the two commandments of justice outlined by Rawls (1) that all persons charter an equal right to liberty and (2) that (a) all inequalities in society should be arranged to benefit the least improvements, and (b) that all positions and offices should be open and accessible as outlined by fair comparability of opportunity. Rawls conception of society, as a co-operative venture for mutual gain, forms the creation for both principles, and he is at all times concerned with creating a stable concept of fair and just society. Rawls second principle, dealing with permeant justice and equality of opportunity, outlines a theoretical procedure whereby the maximum hearty primary goods (i.e. wealth, health, respect, happiness) can be distributed o those with the minimum advantages (maximin). Rawls introduces this concept by establishing a social contract between people behind a veil of ignorance. This veil would remove the identity and characteristics from an individual (age, sex, social status, race, religion, etc.) so that he or she would be forced to support a fundamental Social Structure (where controls are set on the activities of individuals to maximize count primary goods and liberties) that is fair, just and equal. Rawls reasons that all inequalities that do not arise from such(prenominal) social circumstances are just, and therefore searches for a way to pay social inequalities fair. In accordance with his policy of justice as candor, Rawls creates, and later def annuls, what is known as the difference principle (principle of justice 2). This principle stipulates that those who are adv... ...nis player and a gardener, both of equal social advantage and natural endowment. One (the tennis player) chooses to waste resources and barely sustain himself, and so spiraling into the least advantaged spot. The gardener, on the other hand, continues to produce resources, and thus would have to, according to Rawls, subsidize the tennis players decision not to work (as she would be in the great economic standing). Kymlicka calls this situation unreasonable, and states that Rawls needs to make his guess more ambition-sensitive to account for personal decisions. In cases like these, the worry is that individuals would regress ambition and their drive to succeed, as those who do had such characteristics would only end up supporting others. Overall, however, Kymlicka supports Rawls principles of justice, sighting their utility in society, even if at time impracticality.

Internet working Essay

Today, the net profit and World Wide Web (WWW) argon familiar terms to millions of populate each(prenominal) in both over the world. M severally quite a little depend on applications enabled by the lucre, such as electronic beam and Web admittance. In addition, the increase in popularity of business applications places additional violence on the internet. The Transmission Control Protocol / lucre Protocol (transmission control protocol/IP) communications protocol suite is the engine for the Internet and net earns worldwide. Its simplicity and power has lead to be the single net protocol of choice in the world right away so the world has beseem a global village where the sight live their life on the Internet.It has no boundaries or barriers, It is open to all who mother access to Internet apply computing machine. The e-commerce and on business organization business has really facilitated the people nowadays. The main design goal of transmission control protocol/IP was to build an intercommittedness of networks, referred to as an internetwork, or internet, that provided universal communication services over inhomogeneous physical networks. The clear benefit of such an internetwork is the enabling of communication betwixt hosts on different networks, perhaps separated by a large-mouthed geographical atomic number 18a.1. Introduction.The internet has been a useful source of in functionation for the habitual and made things possible which were impossible in the past . Such as emailing has accelerated the process of Mailing and it hardly takes seconds to reach in whatever part of the world as the Client ar connected to emcee and the Server connects the clients to world wide blade . it is like cob web which keeps connected to all users at the same season .The Internets growth has become explosive and it seems impossible to escape the bombardment of www.coms seen constantly on television, heard on radio, and seen in magazines. Because th e Internet has become such a large part of our lives, a good disposition is needed to use this new tool most effectively.This whitepaper explains the underlying base and technologies that make the Internet work. It does not go into great depth, solely covers abounding of each argona to give a basic understanding of the concepts involved. For any unanswered scruples, a list of resources is provided at the end of the paper. Any comments, suggestions, questions, etc.are further and may be directed to the author at the email reference point given above.The Internet Frame Work As the Internet is a global network of calculators each computer connected to the Internet must(prenominal) have a unique consultation. Internet citees are in the form nnn. nnn. nnn. nnn where nun must be a number from 0 255. This address is kn make as an IP address. (IP stands for Internet Protocol more(prenominal) on this later. ) The picture below illustrates two computers connected to the Internet y our computer with IP address 1. 2. 3. 4 and some other computer with IP address 5. 6. 7. 8.The Internet is represented as an abstract object mediate. (As this paper progresses, the Internet parcel of plot 1 exit be explained and redrawn several times as the details of the Internet are exposed. ) Diagram 1. a These IP addresses are actually divided into different classes, where each class has its own range and criteria to define the number of hosts and networks. These types of information depends on your network size, criteria and purpose. In the Diagram 1. b, you can find the detail information related with the IP address classes. Diagram 1. b. The decimal representation of Internet addressesIf you connect to the Internet through an Internet Service Provider (ISP), you are usually assign a temporary IP address for the duration of your dial-in session. If you connect to the Internet from a local area network (LAN) your computer might have a permanent IP address or it might con tain a temporary one from a DHCP (Dynamic Host Configuration Protocol) server. In any case, if you are connected to the Internet, your computer has a unique IP address.Hierarchical Versus Flat spoken language Space Internetwork address space typically takes one of two forms hierarchical address space or suave address space. A hierarchical address space is organized into numerous subgroups, each successively narrowing an address until it points to a single doohickey (in a trend similar to street addresses).A flat address space is organized into a single group (in a manner similar to U. S. Social Security numbers). Hierarchical addressing offers certain advantages over flat-addressing schemes. Address sorting and recall is simplified through the use of comparison operations. Ireland, for example, in a street address eliminates any other country as a possible location. Fig. 1. 1.Hierarchical and flat address spaces differ in comparison operations. Fig 1. 2 Source TCP/IP Illustrated , script 1, The Protocols. W. Richard Stevens. Addison-Wesley, Reading, Massachusetts. 1994. The Ping Program If any body who is utilise Microsoft Windows or a flavor of UNIX and have a connexion to the Internet, there is a trained course of study to see if a computer on the Internet is alive. It is called ping, credibly after the sound made by older submarine sonar systems. 1 if you are using Windows, inauguration a govern spry window. If you are using a flavor of UNIX, need to a command prompt. Type ping www. yahoo. com.The ping program volition send a ping (actually an ICMP (Internet Control Message Protocol) echo request content) to the advertd computer. The pinged computer provide respond with a reply. The ping program will count the time expired until the reply comes back (if it does). Also, if you enter a landing field yell (i. e. www. yahoo. com) instead of an IP address, ping will resolve the domain name and display the computers IP address. More on domain na mes and address resolution later. Protocol Stacks and Packets So your computer is connected to the Internet and has a unique address. How does it talk to other computers connected to the Internet?An example should serve here Let us understand your IP address is 1. 2. 3. 4 and you want to send a message to the computer 5. 6. 7. 8. The message you want to send is Hello computer 5. 6. 7. 8 Obviously, the message must be hereditary over whatever conformation of wire connects your computer to the Internet. Let us say you have dialed into your ISP from nucleotide and the message must be transmitted over the phone line. thus the message must be translated from alphabetic text into electronic signals, transmitted over the Internet, and then translated back into alphabetic text. Now there is the question that how is this accomplished?Through the use of a protocol view. Every computer needs one to communicate on the Internet and it is usually strengthened into the computers operating system (i. e. Windows, UNIX, etc. ). The protocol volume used on the Internet is referred to as the TCP/IP protocol stack because of the two major communication protocols used. The TCP/IP stack looks like this Protocol Layer Application Protocols Layer Protocols specialized to applications such as WWW, e-mail, FTP, etc. Transmission Control Protocol Layer TCP directs packets to a specific application on a computer using a port number. Internet Protocol Layer.IP directs packets to a specific computer using an IP address. Hardware Layer Converts binary packet data to network signals and back. (E. g. Ethernet network card, modem for phone lines, etc. ) If we were to follow the grade that the message Hello computer 5. 6. 7. 8 took from our computer to the computer with IP address 5. 6. 7. 8, it would happen something like this Diagram 2 The message would activate at the top of the protocol stack on your computer and work its way downward. If the message to be sent is long, each st ack point that the message passes through may break the message up into small chunks of data.This is because data sent over the Internet (and most computer networks) are sent in manageable chunks. On the Internet, these chunks of data are cognize as packets. The packets would go through the Application Layer and continue to the TCP degree. Each packet is assigned a port number. Ports will be explained later, but suffice to say that some programs may be using the TCP/IP stack and sending messages. We need to whap which program on the endpoint computer needs to receive the message because it will be listening on a specific port.After liberation through the TCP layer, the packets proceed to the IP layer. This is where each packet receives its destination address, 5. 6. 7. 8. Now that our message packets have a port number and an IP address, they are ready to be sent over the Internet. The hardware layer takes care of turning our packets containing the alphabetic text of our mes sage into electronic signals and transmission them over the phone line. On the other end of the phone line your ISP has a direct connection to the Internet. The ISPs thoroughfarer examines the destination address in each packet and determines where to send it.Often, the packets next stop is another router. More on routers and Internet infrastructure later. Eventually, the packets reach computer 5. 6. 7. 8. Here, the packets start at the bottom of the destination computers TCP/IP stack and work upwards. As the packets go upwards through the stack, all routing data that the sending computers stack added (such as IP address and port number) is stripped from the packets. When the data reaches the top of the stack, the packets have been re-assembled into their current form, Hello computer 5. 6. 7. 8 Networking InfrastructureSo now you know how packets travel from one computer to another over the Internet. But what is in-between? What actually makes up the Internet? Let us look at ano ther diagram Diagram 3. 1 Here we see Diagram 1 redrawn with more detail. The physical connection through the phone network to the Internet Service Provider might have been easy to guess, but beyond that might bear some explanation. The ISP maintains a pool of modems for their dial-in customers. This is managed by some form of computer (usually a dedicate one) which controls data function from the modem pool to a backbone or dedicated line router.This frame-up may be referred to as a port server, as it serves access to the network. Billing and usage information is usually collected here as well. After your packets traverse the phone network and your ISPs local equipment, they are routed onto the ISPs backbone or a backbone the ISP buys bandwidth from. From here the packets will usually journey through several routers and over several backbones, dedicated lines, and other networks until they find their destination, the computer with address 5. 6. 7. 8. But wouldnt it would be nice if we knew the exact route our packets were taking over the Internet?As it turns out, there is a way The vestige route Program If youre using Microsoft Windows or a flavor of UNIX and have a connection to the Internet, here is another handy Internet program. This one is called trace route and it shows the path your packets are taking to a given Internet destination. resembling ping, you must use trace route from a command prompt. In Windows, use tracer www. yahoo. com. From a UNIX prompt, type trace route www. yahoo. com. alike(p) ping, you may also enter IP addresses instead of domain names.Trace route will print out a list of all the routers, computers, and any other Internet entities that your packets must travel through to get to their destination. If you use trace route, youll notice that your packets must travel through many things to get to their destination. Most have long names such as sjc2-core1-h2-0-0. atlas. digex. net and fddi0-0. br4. SJC. globalcenter. net. These a re Internet routers that decide where to send your packets. Several routers are shown in Diagram 3. 1, but only a few. Diagram 3. 1 is meant to show a simple network structure. The Internet is much more complex.

Biblical Worldview Essay Essay

Introduction/ThesisThe give-and-takes New Testament oblige of Romans, chapters 1-8, provides a fundamental perspective and useful resource on how idol desires to shape our ballview. A biblical worldview in a society that gravitates to a distasteful nature gutter be a challenge. capital of Minnesota, however, provides insight that may not encompass every theological truth, but provides the basis of establishing a biblical worldview. Specifically, these chapters provide the essence of how Christians should view the raw(a) world, military man identity, charitable relationships, and culture.The Natural WorldPauls description of a worldview of the inborn world is supported in the Bible several times. The book of coevals begins with betterions creation of the heavens and earth as describe in Genesis 11. Romans 120 also supports perfection as the master creator by explaining, For ever since the world was created, quite a little have butt againstn the earth and sky. Through everything deity do, they can clearly see his invisible qualitieshis eternal power and divine nature. So they have no excuse for not k immediatelying deity. (NLT) But, because of mans sinful nature, mountain turn away from Him and deny His power and divinity.In Romans 121-23 Paul states, For although they knew divinity, they neither glorified him as idol nor gave thanks to him, but their view became futile and their foolish hearts were darkened. Although they claimed to be wise, they became fools and exchanged the glory of the god God for images made to look like a mortal military man being and birds and animals and reptiles. (NIV) Despite the evidence of Gods existence, people glum away from Him, worshipped idols, and continued to relish in sin.Human personal identityGod created man in His image and put mankind everywhere the rest of His creation. In fact, God has ranked man just a little lower than the angels and has anointed us with His glory and honor (Psalms 85). So, why is it we have an identity crisis? It is because of sin, we have fallen out of Gods grace. Romans 310 states, There is no one righteous, not flush one. (NIV) It is by means of Adams sin that we ar all now held in Gods contempt. God understands man is bound by his sinful nature. But, Paul describes our opportunity for redemption in Romans Chapter 81-2, Therefore, in that location is now no condemnation for those who are in Christ Jesus, because done Christ Jesus the lawfulness of the Spirit who gives life has set you complete from the law of sin and death. (NIV) Although the law of sin and death is more effective than our moral will-power, the law of the Spirit of life more powerful than the law of sin and death. It has the power to liberate us. (DeLashmutt) Through Jesus Christ, we are able to reclaim our human identity as Gods children.Human RelationshipsHuman relationships have been tainted with sin since Adam and Eve. God has provided other human relationships as a enable to us. Its through with(predicate) these human interactions we demonstrate Gods love through us. though human nature leans toward sin, especially in dealing with human relationships. Our refusal to discover God will allow us to fulfill our own sinful hearts and desires. These selfish motivations lead us to fulfill the desires of our heart kind of of the desires of Gods heart. In Romans 118-32, Paul provides a luxuriant description of the wickedness and immorality of the people. Sin is what separated us from God and a relationship with Him in the first place. God restored this, however, through our gift of salvation in Jesus Christ. Jesuss life and human relationships, as described in throughout the Gospel, provide a perfect example of the biblical perspective on human relationships.CultureThe biblical worldview on culture that Paul describes in Romans is a society that has consistently imploded. Romans 126-31 provides explicit detail on the Roman culture at that time. Sin was running rampant through the society. People knew God and they spurned Him anyway. This type of sinful nature and blatant rejection of God spread throughout the culture. (Romans 132) People were determined to live in defiance of God and by their own legalistic views of the law. Paul stated that those under the law were outlaw(a) because the people abused the law to provide selfish gains or as a means to stand in judgement of another, especially the Gentiles.God meant for the law to be good, but man manipulated it to his own advantage. On the contrary, devotion demonstrates humility. Paul states in Romans 519, For just as through the noncompliance of the one man the many were made sinners, so also through the obedience of the one man the many will be made righteous. (NIV) The philosophy in this scripture supports Gods desire for us to be the light in the world to shape our culture for His intend and not our own. Paul maintains that the grace that we as Christians are under was achieved by one Mans (Jesus) righteous act (Rom. 518). (McCracken) windupI believe that Pauls epistle is just as pertinent today and it was in his time. Pauls thoughts and insight provide snuff it perspective for biblical worldviews for believers to mature in their faith. These biblical worldviews about our natural world, human identity, human relationship and culture are applicable to received believers because human nature has not changed. These messages are just as relevant to us today because there is still sin in the world that will not end until the Second Coming of Christ. In the meantime, we can use Romans 1-8 as a guide to align our biblical worldviews with Gods heart. Pauls perspective on biblical worldviews, such as these, are just one of the many gems we can cop from the Word.ReferencesDeLashmutt, G. Walking by the Spirit Part 1. Teaching Series from Romans. Retrieved on 5/1/15 from http//www.xenos.org/teachings/?teaching=527.McCracken, R. (April 20, 2014) . The Difference Between Legalism and Obedience. Bible Study with Randy. Retrieved on May 2, 2015 from http//www.biblestudywithrandy.com/2014/04/know-difference-legalism-obedience-romans-5-8/.

Demostration Speech: Salsa Dancing

Presentational Communication Dr. Whalen Demonstration Speech Latin bounce *General Purpose To Inform *Specific Purpose To inform others nearly the culture of Salsa Dancing and the basic go to this leap. *Central Idea The primary(prenominal) locomote in salsa dancing are mainly to harbor beloved eye and feet coordination with your partner. Hola amigos, como estan todos? How many of you lay down ever been at a fuck off or club in DC, heard a song identical to this? Play snippet of music (10 seconds) and wondered what kind of music that is or how to dance with it? Well that mis amigos is c totallyed Salsa.Salsa has been an important type of dance in my family since I was a little kid. Every since I could walk, my uncle would always grab my cousins and I and thatched roof us the basic moves. As we got older we took classes with a good family jock and at the Salsa Club in VA. Its well-nighthing that brings my family and I together and is strange to our hearts. Today Ill be discussing the history of salsa, some of the benefits, and demonstrate how to dance this customary Latin dance. Introduction 1. Originated in the 1920s, Salsa is one of the oldest and most popular styles of Latin dancing.It combines many Spanish-derived and Afro-Cuban elements, which gives its a bit more excitement. Salsa is connatural to Mambo in that both claim a pattern of six step danced over eight counts of music. Contra-Danze (Country Dance) of England/France, later called Danzon, was brought by the French who fled from Haiti, which later began to aggregate itself with Rhumbas of Afri bed origin. Son, of the Cuban people, was a mixture of the Spanish sonero and the African drumbeats. Flavora and a partner dance f woefulered to the beat of the clave. (Bartch) 2. fit to livestrong. om, you can topaz up to 500 calories with this one type of dance. it helps you develop stronger postures and boost your confidence. 3. According to fitday. com, salsa dancing has great health b enefits such as improving cardiovascular fitness and endurance as well as strength, balance, coordination, and muscle toning 4. salsabeat. com in any case states that one benefit of salsa dancing from a social perspective is the using of new social relationships. Okay so now well get into the gambling stuff.. Body 1. first you want to assimilate sure you have comfortable clothing and shoes.In many Latin American countries the women wear dresses with low heels, unless your advance I would recommend you wear leggings with low heels. *After you have dressed comfortably 2. You want to grab a partner. You want to make sure you partner is the skillful height, ladies you dont want a man who is shorter, then you, it wouldnt be very comfortable. *After you have grabbed your partner 3. You want to stand straight in a concern position. Once you are in a straight centered position, ladies collect the leadplace your accountability hand on his left lift men place your left hand on her wa ist and your right hand on her shoulder. Once you have placed your hands where they plump 4. The music will start to playmen take your right leg and move it in nominal head, ladies as his right leg starts to move forward youll want to take your left leg backwards, count 1 2 3 and add in a little move with your hips. 5. puzzle back to a centered straight position and repeat the steps with your other leg. 6. Once you get the hang of a couple steps you can add in some turns to give the routine some more flavor. Make sure you keep up with the beat salsa can be tricky at times so always hark carefully to the beat. 7.Finally youll want to practice a few times and taper of your new dance moves. Conclusion In conclusion, I hope you all have learned and enjoyed learning some basic salsa moves, which includes the basic front to back, moving the hips and turns. Not only is salsa a good exercise for your legs, because institutionalise me you will feel the burn after dancing for hours, bu t its also a good way to expand your culture horizons. The near time you want to go to dancing, try going somewhere where Latin music is played so you can show off your tonic new moves and be the life of the party.

Bullfighting in the Sun Also Rises

Jonathan Rowe Essay 1 The Sun Also Rises English 42 bear on Speirs 3/28/2010 No Bull in Bull tuging In The Sun Also Rises, Ernest Heming vogue writes nobody ever lives their life all the way up except darn-fighters (100). Spoken by Jake, this line exemplifies the importance that papal bullfighting plays in the novel. Its not only portrayed as a sport, yet rather as a complex, mathematical art in the diversity of a dance surrounded by the bull and fighter. The matador scene in chapter 18 is perhaps one of the richest in the novel due to its use of symbols.The stage dancing between Romero and the bull is reflective not only of the characterization of Brett and Jake, nevertheless of the relationship between Brett, her masculinity, and her effect on the new(prenominal) male characters. It excessively provides penetrating insight to the role that Robert Cohn plays as a foil, and how he contrasts with the new(prenominal) characters. The most prominent correlation that the bullf ighting scene carries in name of symbolic representation is a parallel to Bretts sexuality. On a loadedr inspection, the fight also resembles an improvised dance between two partners.Each dancer has a designated terrain, and as long as a bullfighter stays in his own terrain he is comparatively safe (213). And a dance between two partners can be compared to the tumultuous events that love can bring, for physical exertion the relationship between Brett and Jake. Its interesting to note that early in the novel, Brett responds to Jakes doubtfulness of living together by saying that shed just tromper him (55), a cut word meaning to abuse and cheat. The diction almost resembles an animalistic quality, as well as the word trample, foreshadowing the symbolism behind the bullfighting scene. adept like Romero is luring and enticing the bull with his cape, Brett charms men with her charisma and charm, and refuses to bring all meaningful relationship to fruition. The diction of the scen e involving Romero and the bull also carries any(prenominal) sexual overtones. Romero had to make the bull consent with his body, (217) creating an image where the man and the bull were all one sharply etched mass (217). In term of symbolism, Romero is reflective of Brett, and the bull represents the men that Brett seduces. His method is to be all so slow and so controlled (217) at first, to lure the bull into proximity.Similarly, Brett lures men in with her brazen sexuality. The end result is the same however, with the bull and the men shes snarly with. Romero will fight and kill the bull, just like Brett will lure men and eventually leave them. Its all for sport, all for pleasure (208). Bretts tenderness to Romero can be explained in terms of his masculinity. Romero is somewhat of a arrant(a) male, hes an aficionado, brave, beautiful, and held in very high esteem by everyone he encounters as well as being the favorite fighter of the crowd. He resembles Bretts masculinity.Shes habituated a unnisex name, has short hair, and even refers to everyone as chaps. She seems to mingle only with other men, possibly because shes shunned by other females for her promiscuity. While Romero and the bull most well-nigh represent Brett and Jake, upon closer inspection another similarity can be drawn between Belmonte and Robert Cohn. Belmonte is a symbol for Cohn and his relationship with the other characters. Just like how Belmonte serves as a foil to the decadent style of Mercial and valiancy of Romero, Cohn is a foil to the other characters around him.While Romero would tease the audience with his beautiful style and fighting close to the bull, Belmonte, now resuming bullfighting out of retirement, only gave the sensation of coming tragedy and only gave the illusion of being close to the bull. He was once a great fighter, but now refuses to tolerate to the new decadent (215) bullfighting style. His fighting style represents Cohn in the sentience that they both had their shining momentCohns brief relationship with Brett, and Belmontes glory eld of bullfighting which theyre still trying to win back.Belmonte stands apart from the other fighters because he adheres to an tralatitious form of fighting. Similarly, Cohn is the only character with no involvement in the war, he preserves a sort of innocence and value dodge that disappeared with the lost generation. He tries to preserve the idea that sex equals intimacy and love, and passim the novel his clumsy attempts to win back Brett are reflective of his refusal to go through that his brief relationship with Brett was simply a series of sexual encounters, zilch more.In conclusion, part of what makes Hemingways style so unique is that he simply shows, without overmuch telling. The matador scene in chapter 18 is rich because it provides penetrating insight with its symbolism Lady Brett with her elusive nature with men is captured through Romeros matador technique. The fact that Romero pen etrates the bull with his sword accentuates the inherent masculinity that Brett displaysa sort of role reversal. Chapter 18 also highlights the character of Cohn, and his role as a foil and its parallels to Belmontes traditional fighting style.

Usefulness of Accounting Ratios in Financial Analysis

Accounting ratios be a technique normally adopted by fiscal analysts in order to highlight the financial health of the company at hand. There are a vast depend of accounting ratios, each of which egresslines certain aspect of the organisation.The main areas normally considered are the financial performance, financial congeal and financial stability of the corporation. In this view it is imperative that one first classifies the ratios in accordance with the aforesaid categories. In this respect, the ratios that portray the financial position of SR build usefulness express mail are current ratio, acid test ratio, parentage gamingover, debtors days and assent ratio.Ratios are a static figure, which on its own merits is meaningless to the financial analyst. Therefore it is important that such figure is either compared in the very(prenominal) organisation over time or with a company in the same or similar industry. The financial ratios of Easy Build limit are utilised in ord er to amplify the financial position of SR edifice Service exceptional. This will provide fruitful study on such facet.1.1 Financial Position of SR Building Service LimitedThe financial position of the company will be examined in terce main areas. These encompass the working capital on a generic wine basis, fol depressive disordered by the vigilance of stock and debtors plus creditors. This will be conducted in the proceeding sections.1.1.1 Working Capital of SR Building Service LimitedThe power of the current assets to silver screen the current liabilities of SR Building Service Limited is inferior to the other company. This is revealed by the reduce current ratio of the firm. The mutant of 0.71 indicates that the short-term liabilities of SR Building Service Limited are in a higher proportion to the current assets. Such variable implies that management is less effective in administering the working capital of SR Building Service Limited. kick upstairs more(prenominal), the ability of the most liquid assets (debtors and cash and cash equivalents) to cover the short-term liabilities is also weaker than that of Easy Building Limited. This factor is outlined in the lower acid test ratio amounting to 0.38.It is therefore pertinent to disk operating system that on a generic perspective the financial position of SR Building Service Limited is worse than the other business entity. Further amplification of the liquidity of the company can be performed by examining in more detail the main current assets and current liabilities of the organisation. These encompass the compendium of the stock, trade debtors and trade creditors of the firm. Such examination will be performed in the forthcoming sections.1.1.2 Management of StockThe stock turnover ratio portrays the number of clock stock of the company is turned over. The higher such ratio the more effective is the management in the utilisation of stock. An organisation with a low stock turnover ratio normall y implies that the company is stocking goods for a wide time.This is a highly risky element in light that the growth may quickly turn obsolete realising a price lower than its original cost. For example, stocking a lot for retailers of clothes and electronic equipment namely ready reckoner hardware is significantly risky. Clothes may easily turn out of fashion leading to the aforementioned effect, and technological advancements may quickly turn electronic goods into obsolete products. Indeed organisations like Toyota nowadays are adopting a Just in Time Inventory System. Such technique encompasses retentiveness stock to a minimum, normally zero level.In light of the above, SR Building Services Limited surpasses Easy Build Limited on the stock facet. At this stage one would thus ponder the reason wherefore the overall working capital of the firm at hand is weaker in comparison to Easy Build Limited. The proceeding examination may run out further light on such matter.

Price Determination

Price Determination under Monopoly Monopoly is that market form in which a bingle producer controls the whole supply of a single commodity which has no close substitute. From this definition there are devil points that must be noted (i) Single ProducerThere must be only one producer who may be anindividual, a partnership planetary house or a joint stock comp whatsoever. thereof single firmconstitutes the industry. The distinction between firm and industry disappearsunder conditions of monopoly. (ii) No neighboring SubstituteThe commodity produced by the producer must have no closely competing substitutes, if he is to be called a monopolist.This ensuresthat there is no adversary of the monopolist. Therefore, the cross elasticity ofdemand between the product of the monopolist and the product of any otherproducer must be very low. PRICE-OUTPUTDETERMINATION UNDERMONOPOLY A firm under monopoly faces a downward sloping demand curve or average revenue enhancementcurve. Further, in monopoly, since average revenue falls as more than units of product are sold,the fringy revenue is less than the average revenue. In other words, under monopolythe MR curve lies below the AR curve. The Equilibrium direct in monopoly is that level of output in which marginal revenueequals marginal cost.The producer bequeath continue producer as long as marginal revenueexceeds the marginal cost. At the point where MR is equal to MC the profit leave behind bemaximum and beyond this point the producer will stop producing. It can be seen from the diagram that up till OM output, marginal revenue is greater thanmarginal cost, however beyond OM the marginal revenue is less than marginal cost. Therefore, the monopolist will be in equilibrium at output OM where marginal revenue isequal to marginal cost and the profits are the greatest. The corresponding price in thediagram is MP or OP.It can be seen from the diagram at output OM, while MPis the average revenue, ML is the average cost, therefore, PL is the profit per unit. Now the total profit is equal to PL (profit per unit) multiply by OM (total output). In the oblivious run, the monopolist has to keep an substance on the variable cost, otherwise he willstop producing. In the long run, the monopolist can commute the size of plant in responseto a change in demand. In the long run, he will make modification in the amount of thefactors, fixed and variable, so that MR equals not only to short run MC but also long runMC

Stresemann Exam Question Answers

Describe the headstone features of the Stresemann foreign policy in the years 1923-1929 (6 marks). In 1924 Stresemann and Charles G. Dawes created the Dawes Plan. The Dawes Plan lessen annual localisation honorariumments to an kick inable amount. It was withal agreed that American Banks would redact in German industry. This also improved the trust the solelyies had in Ger umteen, as they were reassured that they would get their reparation payments. In 1925 Stresemann signed the Locarno Pact. This was a treaty amongst Germany, Britain, France, Italy and Belgium.The Pact consisted of Germany agreeing to keep its border with France and Belgium if Allied promenade left the Rhineland and France promised peace. This opened talks ab place Germany joining the League of Nations, as the Allied troops began to see Germany as a friend rather of an enemy. In 1929 Stresemann signed the Young Plan. This reduced the total reparations debt to ? 2 billion. too Germany was given a further 5 9 years to pay. This cooperateed Germanys debt bformer(a)s, as they didnt have the worry of not being able to afford the annual reparation payments.Describe the key features of the Dawes plan (6 marks). In 1924 The Dawes Plan was created between Stresemann and Charles G. Dawes, an American Banker. One feature of The Dawes Plan was that annual reparation payments that Germany had to pay were reduced to an affordable amount. This meant that there would be less chance of an incident, wish well the occupation of the Ruhr, would happen once again as the annual payments were much more than realistic to Germanys financial state. Another feature of The Dawes Plan was that American banks would invest in German industry.This meant that Germany could rebuild their industry, therefore increasing employments, which stretch forth to increased profits. One bad feature of The Dawes Plan was that it relied heavily on American banks. This would prove to be a bad idea after(prenominal) the Wal l Street Crash as America called in all their foreign loans, devastating Germanys economy once again. Explain the make of the Great Depression in Germany (8 marks). The Great Depression led to piling unemployment in Germany. In 1928 fewer than one million multitude were fired by 1932 over six million people were unemployed.This meant that an increasing b verboten of people were living in poverty. Because people were unemployed, they had less money to go through on products made in Germany. This further damaged Germanys industry, hint to mass debt and further unemployment. The Great Depression also led to people voting for extreme political parties, in hope that they could drag Germany out of the state that they were in. Most of these people were unemployed citizens, as they were the most desperate. This subsequent led to Hitlers rise into power. Was inflation the worst problem that the Weimar country faced in the years 1919-1928?Explain your answers. You may use this data to help you (16 marks). * Weaknesses in the constitution. * Uprising against the Government. * Hyperinflation. * The effects of WW1. One problem the Weimar state faced was the high reparation payments they had to make. These reparation payments send Germany into massive debt, pencil prevail to mass poverty and unemployment. I think this is one of the worst problems Weimar faced, as not only was it bad in itself, tho it also feed to many other problems, such as hyperinflation and industrial problems.The Treaty of Versailles also meant that Germany lost lots of land- leading to further debt. This lead to further debt in Germany as they lost many resources which made them money. They had lost 50% of their atomic number 26 resources and 15% of their coal resources- which were their main means of earning money. I think this was burning(prenominal) as it contributed to all the other problems they faced, such as debt and hyperinflation. Another problem the Weimar Republic faced was that extreme political parties were attempting uprisings against the political sympathies.In 1919 the Spartacist League attempted to repeal the government and have a communist government instead, by pickings over key buildings such as newspaper offices, set up workers and soldiers soviets and demonstrated with 100,000 supporters in Berlin. In 1920the Kapp Putsch took place. They also wanted to egress indorse the current German government, but they wanted to bring back Germanys previous leader, the Kaiser. They attempted an uprising by taking over Berlin. They were successful, but the German government ordered a general strike.The gas, electricity, water and acquit in Berlin were stopped, as no-body was producing them, so they fled Berlin. The constant threat of uprisings led to an fluid government, which the public didnt trust. Because the public didnt trust the government, they started to vote for extremist parties, in hope that they would be able to improve the state of Ge rmany. This was a large issue, as it showed, not only to the public, but also other countries that Germany was unstable and untrustworthy. Hyperinflation was also a massive problem Weimar faced.When Weimar failed to pay the reparation payment in January 1923, French and Belgian troops marched into the Ruhr, an industrial firmament with lots of coal, iron, steel and factories. France and Belgium began to take what was owed to them in coal, steel and iron. The German government ordered its workers in the Ruhr to go on strike and not to help the soldiers remove the goods from the country (passive resistance). But because the government ordered the workers to go on strike they had to pay them, but they had no moneySo they printed more money, reducing the worth of money. As the worth of money went down, the price of goods went up. This cycles/second continued until people were being paid daily by the burial mound full, and spending their money in their lunch breaks, before the prices rose again This was a massive problem in Weimar as the country was already in poverty, due to the reparation payments they had to pay, but prices were still rising. This meant people couldnt even afford essential goods- leading to further poverty.I dont agree that hyperinflation was the worst problem that the Weimar Republic faced. Although it was a huge problem, I think that debt- due to reparation payments- was the worst problem as it lead to all the other problems they faced. Draw designs and then final designs Draw elect design, with a 1. 5cm ancestry allowance, on spot and cross paper and tell apart out. Include grain line and how many need to be cut for 1 pillow Draw half of the design, with 1. 5cm seam allowance, on A3 paper. give on 5cm for fold over and 2cm for seam. neglect out.Include grain line and how many need to be cut for 1 pillow. Cut material victimisation guides. Sew front material together with wadding in between, for quilting. Cut wings, feathers and eyeba ll out of different materials. Sew on feathers made out of polar fleece, with a straight stitch. Applique on wings victimization bond-a-web. Applique on eyes using bond-a-web. Sew buttons on for eyes Sew on nose with a straight stitch. Sew 2cm seam on straight edge of the two back pieces. Sew the back pieces onto the front piece, so that they overlap by 5cm.

Ecuadorian Rose Industry

The Ecuadorian Rose Industry 1. What is the basis of Ecuadors comparative advantage in the production of roses? Ecuadors rose farms are located in the retributive about everlasting(a) position for growing long and straight roses or at least most of the farms. They are positioned at about 10,000 feet circus tent in the Andes Mountains. This provides the roses with high altitude, volcanic soil that is very rich in ingredients, and located on the equator. This gives the roses about 12 hours of daylight every day. Graham) This provides an vehement amount of sunlight, so farmers use plastic sheeting to create a greenhouse effect. I believe this helps keep the roses from burning up, being so c miss to the sun, and from freezing on the cold nights. (Hamilton) It creates a sense of perfect temperatures. (Thompson) 2. Most Ecuadorean roses are sold in the United States or atomic number 63. Who in these countries benefit from the importation of Ecuadorean roses, and how do they benefit? Wh o loses? Do you think the benefits outbalance the costs?In 2006, the United States accounted for 61% of the Ecuadorean roses total sales. This made us the largest market in this rose industry. Europe accounted for 20% of the exportings of Ecuadorean flowers, while these flowers accounted for 31% of the United States flower imports. (Alvaro) Both countries benefit over on the whole because they can imports the roses at such a low price and most of the profits extend in the imported country. (Graham) I believe local growers are the ones who lose in this situation. If buyers can find them for a lower price, most lead take it so they can keep more profits.This isnt ineluctably the best option for our country, but several(prenominal) companies do not attention about the greater good of helping our own country. 3. How does the rose export industry benefit Ecuador? Do these benefits carry any implications for the United States and Europe? With the increase of rose and other flower exportation from Ecuador, the countrys export revenue has increases and is increasing the stability of its economy. (Halberstadt) This is one of the effects of the medium trade agreement between them and the United States. Another effect is the wasted money the people are getting.They are able to take classes to swindle how to manage the extra money. (Hamilton) Ecuador has also been able to pave more roads, develop sophisticated irrigation systems, and some schools with the taxes and revenues from growing roses. (Thompson) Developed countries, like the United States and Europe, have to understand that as developing nations, like Ecuador, become more real they have to adhere to global standards and it is up to positive countries to help with this. 4. How should developed nations respond to reports of poor working conditions in this industry?Should importers in some way certify Ecuadorean producers, or only importing from those who adhere to unyielding ram and environmental s tandards? I believe the developed nations should help to make headway making the working conditions better. Although the average flower worker does earn more than the minimum wage of $120 per month, but it does not make up for the horrible conditions. I also believe importers should certify Ecuadorean producers for those following the labor and environmental standards and those who are trying to improve their operations. Plantations, like RosaPrima, have through with(p) this.Ross Johnson, a general manager of the plantation, said that they had made a trade of improvements over the years, from protective wear and equipment to cracking down of child labor. (Thompson) industrial plant Cited 1. ) Alvaro, Mercedes. Ecuador Flower Exports Require U. S. Trade Deal to Keep Growing. Dow Jones Newswires Feb. 2006. 3 demonstrate 2013 <http//www. organicbouquet. com/i_205/20060215-DowJones. html>. 2. ) Graham, Grace. Five Reasons who you shouldnt Buy her Roses North by north Feb. 201 0. 3 March 2013 < http//northbynorthwestern. om/story/five-more-reasons-why-you-didnt-buy-your-girlfrien/>. 3. ) Halberstadt, Jason. Ecuador Foreign Trade. Ecuador Trade Copyright 1997-2013. 3 March 2013 <http//ecuadorexplorer. com/html/trade. html> 4. ) Hamilton, Cortney and Deb Tullmann. Rough Cut. Ecuador Flower spot Feb. 2008. 3 March 2013 <http//www. pbs. org/frontlineworld/rough/2008/02/ecuador_a_rosie. html>. 5. ) Thompson, Ginger. Behind Roses Beauty, Poor and disappointment Workers NY Times Feb, 2003. 3 March 2013 <http//www. nytimes. com/2003/02/13/us/behind-roses-beauty-poor-and-ill-workers. html? pagewanted=all&src=pm>.

Brand Comparison Paper Essay

Pepsi Co. and coca plant- weed hold in been in occupancy for a long time and both atomic number 18 largely prospe rosy companies in the beverage industry. They both have different grease components in comparison. A few of the different comparisons would be pricing, character reference, packaging, logos, brand equity and features. In the following paper we will discuss these items in detail to call how different these devil brands ar. Pricing StrategiesLooking at the pricing strategies of PepsiCo and coca- the skinny they are taking devil very different plans. The growths they sell are analogous with variations in taste and the brand war in the soda foodstuff has been to out give the sack your competitor to gain market share. The issue with big(p) deep discounts is that your digging into profits which could ca occasion both long-term and short issues. Pepsi has realized the short-term scheme of deeply discounting products everywhere its brand portfolio is not a su stainable business model for the long-term business needs. PepsiCo has changed its wad from the short term to the long term and was in a pitch contour in 2013 that slowly saw the company stop offering discounts alone switch to a hybrid everyday look upon strategy. The hybrid strategy closes the gap of holiday price points and its regular price point to furnish a better value for the customer very day and not just wait for sales to purchase the product (Reuters, 2013).Coke on the other had is still out performing PepsiCo and other competitors even in 2014 so their outlook is different. The large reason for their performance is the heavy discount strategy that is continuing to be implemented. While it is self-made in the short-term it leaves the soda giant open for long-term financial issues (Cooper, 2014). Comparing the two while Coca-Cola is winning the short-term war currently PepsiCo is setting itself up for better long-term gains and growth. PepsiCo is able to see the v alue in the hereafter of its company and understands it had to change the manner it does business which would cause a short-term set back while introducing its new pricing strategy. However, the long-term value of doing this will keep the company in business and profitable for many years too come. Differences in product prime(a)As cold as quality variance in the two products it really is a matter of taste, which is either acquired or just something a person likes. An ideal of an acquired taste one is like the household a person grows up in drinks Coca-Cola then their taste buds may come to like the product because that is what they were offered in the house. Which for either company doesnt represent a quality issue in reality scarcely because of brand loyalty they may deem Pepsi or Coke better than the other product. Pepsi has a obvious sweater taste than Coke, which has a hint of vanilla slaping, higher carbonation, and atomic number 11 per swerving (Mertz, 2013). The lo wer carbonation and sodium makes Pepsi a slightly higher quality product in the not so healthy soda industry. overlap PackagingWhen it comes to Pepsi versus Coca-Cola, these companies have been competitors throughout the years. twain companies have come a long way with their advertisement slogans. Coca-Colas runner slogan in 1886 was Drink Coke and has changed many times over the years to straightaways slogan Open Happiness (Coca Cola Journey, 2012). Pepsis first slogan in 1939, Twice as much for a nickel note promoted great pricing (G&M Distributors, Inc., 2012). Today Pepsis advertising slogan is The Best Drink Created Worldwide (G&M Distributors, Inc., 2012). These two companies could not be any more different is their logos, symbols and colors. Coca-Colas primary(prenominal) logo has not changed much over the years, sticking with the cursive Coca-Cola face (Coca Cola Journey, 2012). Pepsi, on the other hand, has changed their logo many times over the years. From the Pepsi-Cola cursive font to the Pepsi bottle top, and more recently the Pepsi half red and half blue human race (G&M Distributors, Inc., 2012).Product movie and PersonalityEven though these companies are vastly different in there branding they are very similar when it comes to image and personality. some(prenominal) companies are concerned with sustainable packaging, recycling, and making an impact of the future of our globe and its environment. Coca-Cola has a commitment to set the standard for sustainable packaging, achieve postal code waste in our operations and recycle more packaging than we use (Coca Cola Enterprises, 2014). Coca-Cola uses targets such as using less packaging, using recycled materials, deary bottles, recyclability of their packaging, manufacturing, and inspiring consumers to recycle to assist in keeping our environments clean (Coca Cola Enterprises, 2014). Coca-Cola also uses campaigns like Recycle for the Future to inspire communities to recycle (Coca Co la Enterprises, 2014). Pepsi also concerns them with less packaging, turning waste into wealth, recycling, and motivating others to recycle (PepsiCo, n.d.). Both companies want to improve what they are doing as a company to military service improve the environments in communities where they are located.Distinguishing FeaturesPepsi Co and Coca Cola are both known for offering similar colas that have competed to be consumers favorite soda for decades. Pepsi Co most recently has been seen as a more attractive brand to a younger audience than the known Coca Cola. Pepsi Co is known for many products beyond Pepsi cola but is easily recognized by the red, white, and blue logo. Besides the noticeable difference in logos Pepsi tends to have a sweeter taste and a citrusy flavor burst. (Lubin, 2012.) Almost everyone has a preference when it comes to choosing between Pepsi and Coca Cola. There is a great comparison which says Pepsi is a timely brand and the other brands are timeless brand. So one is for the older people, one is for the younger people. (The economic Times, 2013.)Brand beauteousnessA brand has positive brand equity when consumers react more favorably to a product and the way it is marketed when the brand is identified than when it is not. (L.K. Keller, 2008.) Consumers have known both Pepsi Co and Coca Cola for decades. Consumers have tried their products and collected their memorabilia as a booster dose of each brand. Although Coca Cola has proven to be the more successful brand Pepsi Co has not given up. Pepsi Co also has shown success with their sports beverage, Gatorade and bottled water, Aquafina. Pepsi Co has continued to make necessary changes in order to detain competitive and build brand equity.ConclusionIn conclusion, although these two brands are largely successful in their own right they also have very different brand components. We were able to research and distinguish some(prenominal) of them to include pricing, quality, packaging, logos, brand equity and features.ReferencesCooper, T. (2014). The Montely Fool. Retrieved from http//www.fool.com/investing/general/2014/06/16/is-coca-cola-outsmarting-pepsico-or-mortgaging-its.aspx Mertz, R. (2013). Things you didnt know. Retrieved from http//www.tydknow.com/7-differences-between-coca-cola-and-pepsi/ Reuters. (2013). Retrieved from http//www.reuters.com/article/2013/05/22/pepsico-pricing-idUSL2N0E32L020130522 Strategic Brand Management Building, Measuring, and Managing Brand  Equity (3rd ed.) L. K. Keller Prentice Hall, 2008 Upper Saddle River, NJhttp//articles.economictimes.indiatimes.com/2013-11-11/news/43930097_1_pepsico-india-brand-equity brand- positioninghttp//www.businessinsider.com/the-difference-between-coke-and-pepsi-2012-12 Coca Cola Enterprises. (2014). Sustainable Packaging and Recycling. Retrieved from http//www.cokecce.com/corporate-responsibility-sustainability/sustainable-packaging-and-recycling Coca Cola Journey. (2012, January 1). A write u p of Coca-Cola Advertising Slogans. Retrieved from http//www.coca-colacompany.com/stories/coke-lore-slogans G&M Distributors, Inc.. (2012, December 11). Pepsi Slogans and Logos throughout the Years. Retrieved from http//www.gmdist.com/2012/12/11/pepsi-slogans-and-logos-throughout-the-years/ Pepsico. (n.d.). Packaging, Waste & Recycling. Retrieved fromhttp//www.pepsico.com/Purpose/Environmental-Sustainability/Packaging-and-Waste

Chapter 21 Lease Answer Problems

CHAPTER 21 ACCOUNTING FOR LEASES CONTENT ANALYSIS OF EXERCISES AND PROBLEMS Time background (minutes) 5-10 Number E21-1 Content operate necessitate. (Easy) annual requireal defrayments, no renewable option clause, executory cost. less(prenominal)ees daybook entries to eternize agreement, hires, expenses. gravid plight. (Mode site) counting of letting payments do at death of division. delay summarizing deal payments, worry expense. ledger entries. IFRS differences. nifty hire. (Moderate) recompenses constitute at beginning of year. confuse summarizing remove payments, hobby expense. daybook entries.Direct pay convey. (Moderate) Calculation of renting tax revenue, made at obliterate of year. dining table summarizing choose receipts, delight tax. daybook entries. Direct finance lead. (Easy) ledger entries to s feces contract, first rental receipt. Direct Financing prosecute / capital letter lock. (Moderate) Table summarizing contain and p astime payments. daybook entries for less(prenominal)or and lessee. sales-Type carry. (Moderate) defrayals made at end of year. Calculation of selling hurt ( charming honor). Table summarizing countenance receipts, interest revenue. Journal entries. gross sales-Type charter. Moderate) totallyowances made at beginning of year. Calculation of selling price (fair nourish). Table summarizing mesh receipts, interest revenue. Journal entries. Sales-Type ingest / upper-case letter withdraw. (Moderate) reckoning of withdraw payments. Journal entries for lessor and lessee. Operating Lease / Sales-Type Lease. (Moderate) Accounted for as in operation(p), should have been gross revenue-type. Computation of effect on lolly income. Operating Lease. (Easy) Computation of income derived from take up by lessor, heart of rent expense for lessee. E21-2 15-25 E21-3 10-15 E21-4 10-15 E21-5 E21-6 5-10 10-15E21-7 10-15 E21-8 10-15 E21-9 E21-10 10-15 10-20 E21-11 10-15 21-1 Number E21 -12 Content find out Type of Lease. (Moderate) Title passes at lockend, collectibility reasonably assured, no uncertainties surrounding costs to be incurred. Table summarizing receipts, revenue. Lessors journal entries. Guaranteed and Unguaranteed Residual Values. (Moderate) Calculate residual respect. De confinesine classification of the take aim depending on the type of residual foster. (Appendix). Sales-Leaseback. (Easy) Calculation of take away payments. Lessors journal entries to unload sale and agreement.Description of how to treat the descend by the lessee. De edgeining Type of Lease. (Moderate) No mountain procure option, no agreement to transfer self-possession at read-end, no uncertainties surrounding costs to be incurred. Journal entries for lessee and lessor. Guaranteed residual prise. De bourneining Type of Lease. (Moderate) Lessors viewpoint. Option to buy, collectibility reasonably assured, no uncertainties surrounding costs. Journal entries, revelation requirements. bully Lease. (Moderate) Calculation of rental payments. Table summarizing admit payments, interest expense.Journal entries, partial derivative rest period sheet. IFRS differences. Direct Financing Lease. (Challenging) Table summarizing film receipts, interest revenue. write up of ingest classification. Journal entries. Partial oddment sheets. Comprehensive Direct Financing and roof Lease. (Challenging) Computation of rental lists. Table summarizing need and interest receipts. depth psychology of lessees select classification. Journal entries for lessor and lessee. Comparative m hotshottary statement bring outation. Direct Financing Lease. (Moderate) Unguaranteed residual abide by. Computation of rental amounts.Table summarizing lead and interest receipts. Journal entries. Sales-Type Lease. (Challenging) Calculation of implied selling price. Table summarizing engage receipts, interest revenue. Explanation of take classification. Journal entries, part ial balance sheet. various Lease Issues. (Challenging) Journal entries for lessee and lessor to record all select transactions. Various Lease Issues. (Challenging) Computation of annual rentals if account payable at beginning of year, at end of year. Table. Journal entries for lessee and lessor. Partial balance sheet disclosures. 21-2Time Range (minutes) 15-20 E21-13 15-25 E21-14 15-20 P21-1 30-40 P21-2 25-35 P21-3 30-50 P21-4 35-50 P21-5 45-60 P21-6 30-40 P21-7 30-45 P21-8 P21-9 30-45 45-60 Number P21-10 Content Initial Direct make ups. (Moderate) depth psychology for various call for classifications. decision of lessors occupy classification. Discussion of lessors journal entries. Various Lease Issues. (Challenging) categorization of countenance for lessee, for lessor. Option to buy, collectibility reasonably assured, no uncertainties. Lessor journal entries. Accounting for a change in residual hold dear. Accounting for Leases. Challenging) Journal entries to record the m esh for twain the lessee and lessor. (AICPA adapted). Lessors Income Statement. (Challenging) Preparation of lessors income statement, including sales-type and run choose as well as long- consideration construction contracts. (Appendix). Determining Types of Leases. (Moderate) For lessee, for lessor. Lease of land. No bargain bargain for option, collectibility reasonably assured, no uncertainties surrounding costs. (Appendix). Sales-Leaseback. (Moderate) Classification of rent by lessee. Journal entries for two lessee and lessor. Time Range (minutes) 20-30P21-11 30-45 P21-12 P21-13 30-45 50-60 P21-14 10-20 P21-15 20-30 ANSWERS TO QUESTIONS Q21-1 Q21-2 generally accepted invoice principles provides a common set of criteria for determining the classification of term of a contracts by both the lessee and the lessor. The advantages of leasing for the lessee accommodate 1. Financing pull ins a. b. c. The engage provides c% financing so that the lessee acquires the summation without having to make a down payment. The employ contract may contain fewer restrictive provisions for financing. The leasing arrangement creates a claim that is against only the contract equipment and not against all assets. 2.Risk benefit The lease may reduce the assay of obsolescence for the lessee. 3. levy benefit For income tax purposes, the lessee, through deduction of the lease payment, can write off the full cost of an asset. 4. Financial reporting benefit For operate leases, the lease does not add an asset or a liability to the lessees balance sheet. 5. Billing benefit For certain contract-type work, leasing may take into account higher charges because interest on borrowed m atomic number 53y to procure assets is not normally allowed as a contract charge, whereas the interest element contained in the rental payments is allowed as a contract charge. 1-3 Q21-3 By structuring the terms of the lease so that it qualifies as an turn to lease, the lessee avoids having to include the asset and the liability in the balance sheet. Exclusion of these items creates much(prenominal) favorable financial ratios, such as rate of reappearance on investing, the current ratio, and the ratio of debt to equity. This, in turn, may adjoin the borrowing capacity of the lessee. The lessee is practicing off balance sheet financing. A ceiling lease, on the other hand, would appear in the financial statements and affect financial ratios.It may impede lessee borrowing efforts. a. A lease is an agreement impartation the right to use position, plant, or equipment (land and/or depreciable assets), usually for a state period of time. b. A sales-type lease for the lessor is a lease that dates whatever one of the newspaper column A criteria and both of the editorial B criteria in unwrap 20-2, and progenys in a manufacturers or dealers dinero. c. A enjoin financing lease for the lessor is a lease that meets any one of the mainstay A criteria and both of the chromatography column B criteria, and does not result in a manufacturers or dealers profit. d.A sale-leaseback transaction is a lease transaction in which the owner of an asset sells it, and then instanter leases it back from the buyer. e. An operating lease for the lessee is a lease that meets none of the tower A criteria. For the lessor, it is a lease that meets none of the Column A criteria, and fails at to the lowest degree one of the Column B criteria. f. A leveraged lease is a three- society lease in which one party (the equity participant) buys or manufactures an asset and leases it to another party (the asset user), with a troika party (the debt participant) providing nonrecourse financing for the transaction.Q21-4 Q21-5 a. Inception of lease is the date of the lease agreement or, if the undertake airplane propeller is being constructed, the date that the statute title passes to the lessor. b. compact purchase option is a provision allowing the lessee to purchase the leased property at the end of the mannertime of the lease at a price so favorable that the exercise of the option appears, at the root of the lease, to be reasonably assured. c. Unguaranteed residual apprise is the spate of the estimated residual protect of the leased property that is not guaranteed by the lessee or by a third party unrelated to the lessor. . unexpressed interest rate is the interest (discount) rate that, when applied on a pledge protect earth to the sum of the stripped lease payments and any unguaranteed residual foster accruing to the lessor, causes the resulting present entertain to be equal to the net enthronisation of the leased property to the lessor. 21-4 Q21-5 (continued) e. Initial adopt costs be costs incurred by the lessor to originate a lease that (1) result directly from acquiring that lease and (2) would not have been incurred had that leasing transaction not occurred.They also include costs directly related to specified activities performed by the lessor for that lease, such as evaluating the lessees financial condition, negotiating lease terms, preparing and processing lease documents, and closing the transaction. Q21-6 If in that location is a bargain purchase option, the components of the stripped lease payments argon (1) the marginal occasional rental payment mandatory by the lease over the lease term, and (2) the payment required by the bargain purchase option.Otherwise, they include (1) the minimum periodic rental payments plus (2) any guarantee by the lessee of the residual time prise, and (3) any payments upon failure to renew or extend the lease. The criteria for a detonating device lease argon 1. Transfer of willpower at end of lease 2. good deal purchase option 3. Lease term is 75% or to a greater extent of the estimated sparing behavior of the asset 4. inaugurate respect of minimum lease payments is 90% or more of fair think of of the leased property to the lessor One (or more) of these criteria essential be met for the lessee to classify a lease as a capital lease.Q21-8 Under an operating lease, the lessee records each rental payment as rent expense no amount is capitalized. The lessor records each rental receipt as rent revenue. The leased asset is retained on the lessors books and is depreciated by the lessor. Under a capital lease, the lessee records the present grade of the minimum lease payments as both an asset and a liability. The lessee recognizes a portion of each payment as interest expense to produce a constant rate of interest on the book nourish at the beginning of the period, and recognizes the remainder of the payment as a reduction of the lease duty.The lessee depreciates the asset over the term of the lease, unless in that respect is a bargain purchase option or transfer of ownership at the end of the lease, in which case the depreciation period is the scotch manners of the asset. The two additive criteria for a sales-type lease are 1. Collectibility of the minimum lease payments is reasonably assured. 2. No important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor under the lease. In addition, the lease must result in a manufacturers or dealers profit or loss.Q21-7 Q21-9 Q21-10 21-5 Q21-11 The basic difference in chronicle for a sales-type lease is that the carrying survey of the asset is charged to cost of asset leased (expense), and the present order of the minimum lease payments is recorded as the amount of the sale. In a direct financing lease, no sales or expense is recognized. Instead, the asset is removed from the books and the difference between its carrying value and the undiscounted minimum lease payments is recorded as honorary interest revenue.The net coronation in a sales type lease is accounted for in a similar manner to that for a direct financing lease. The FASB states that the interest revenue from a lease is recognized so as to deport a con stant return on net investment. Compound interest techniques can be used to compute this return if the following are known (a) the amount of the lease payment, (b) the cost or fair value of the lease, and (c) the number of periods of the lease. Multiplying the interest rate by the amount of the net investment at the beginning of the year results in a constant return on investment.Q21-12 Q21-13 Q21-14 Owens caller records the lease as a capital lease due to the bargain purchase option, and depreciates the asset over its estimated economic life. The reliable lease was a capital lease and McFarland alliance is relieved of its indebtedness. McFarland removes the equipment from its books, and recognizes the gain when the new lease transaction takes place, that is, during the current year. a. Lessees disclosure 1. For all leases, a general description of the leasing arrangement 2.For operating leases having lease terms in excess of one year (a) Future minimum rental payments required as of the date of the latest balance sheet presented, for each of the 5 succeeding fiscal years and in kernel The total of minimum rentals to be received in the coming(prenominal) under noncancellable subleases Q21-15 (b) 3. For all operating leases, rental expense for each period 4. For capital leases (a) (b) The gross amount of assets recorded under capital leases by major classes according to record or function Future minimum lease payments for each of the 5 succeeding fiscal years and in total 21-6 Q21-15 (continued) a. 4. continued) (c) (d) The total of minimum sublease rentals to be received in the future under noncancellable subleases summations, collect depreciation, depreciation expense, and liabilities b. Lessors disclosure 1. A general description of all leasing arrangements 2. For operating leases (a) The cost and carrying amount, if different, of property on lease or held for leasing by major classes of property, and the amount of the total accumulated depreciatio n Minimum future rentals on noncancellable leases for each of the 5 succeeding fiscal years and in total get contingent rentals included in income for each period b) (c) 3. For direct financing and sales-type leases (a) The components of the net investment in direct financing and sales-type leases including (1) (2) (3) (4) (b) (c) Q21-16 Q21-17 The future minimum lease payments to be received Including any profit on that The unguaranteed residual values accruing to the benefit of the lessor For direct financing leases only, initial direct costs unearned income Future minimum lease payments to be received for each of the 5 succeeding fiscal years Total contingent rentals included in income for each periodIFRS classify leases as each finance leases or operating leases. A finance lease is same to a capital lease under U. S. generally accepted accounting principles. In general, IFRS provide a series of index fingers that, individually or in combination, normally lead a lease to be classified as a finance lease. U. S. GAAP contains a series of tetrad criteria which, if any one is met, will result in the classification of a lease as a capital lease. While these indicators and criteria are similar, the IFRS indicators are less detailed and require more imagination in classifying leases. Specifically, both IFRS and U.S. GAAP treat leases that transfer title from the lessor to the lessee and leases that contain bargain purchase options as finance (capital) leases. However, if an asset is leased for the major part of an assets economic life, IFRS consider this an indicator of a finance lease. IFRS do not define what is meant by easily all of the assets fair value while U. S. GAAP sets a 90% threshold. 21-7 Q21-18 The primary accounting issue in accounting for a sales-leaseback transaction from the seller-lessees viewpoint is the recognition of a profit or a loss on the sale.Any profit or loss is deferred and amortized in proportion to the amortization of the lea sed asset, if a capital lease, or in proportion to the rental payments, if an operating lease. If the fair value of the property is less than its undepreciated cost at the time of the transaction, a loss is recognized immediately on the difference between the undepreciated cost and the fair value. The fact that at that place are three or four parties (equity participant, asset user, debt participant, and also a manufacturer if the equity participant does not make the product) distinguishes a leveraged lease from other leases.For the lessee there are no new accounting issues. The lessee classifies and accounts for the lease as for a nonleveraged lease. Q21-19 ANSWERS TO MULTIPLE CHOICE 1. 2. a b 3. 4. d b 5. 6. a c 7. 8. b c 9. 10. a d 21-8 SOLUTIONS TO REVIEW EXERCISES RE21-1 1. 2. 3. 4. Classification Criteria Transfer of ownership at end of lease wad purchase option Lease term is 75% or more of economic life impersonate value of minimum lease payments is 90% or more of fair val ue Criteria Met? No No No No It is 40% (8 ? 20 years) It is 50% ($50,000 ? $ cytosine,000) Remarks Therefore, this lease is an operating lease.It does not meet any of the criteria. RE21-2 admit outgo exchange 10,000 10,000 RE21-3 1. 2. 3. 4. Classification Criteria Transfer of ownership at end of lease Bargain purchase option Lease term is 75% or more of economic life point value of minimum lease payments is 90% or more of fair value Criteria Met? No No No Yes It is 71% (5 ? 7 years) It is 100% ($250,000 ? $250,000) Remarks Therefore, this lease is a capital lease. It meets one of the four criteria. RE21-4 Jan, 1 lease Equipment superior Lease compact Dec. 31 touch get down (10% x $250,000) Capital Lease contract ($65,949. 7 $25,000) bills 250,000. 00 250,000. 00 25,000. 00 40,949. 37 65,949. 37 21-9 RE21-4 (continued) wear and tear put down lease Equipment stash away wear and tear hired Equipment 50,000. 00* 50,000. 00 *The lessee depreciates the asset using the st raight-line method acting over the lease term because there is no transfer of ownership or bargain purchase option, resulting in annual depreciation of $50,000 ($250,000 ? 5). RE21-5 Jan, 1 chartered Equipment Capital Lease contract Capital Lease pledge capital Dec. 31 take disbursal increase interestingness on Capital Lease duty *($275,000 $65,949. 37) x 0. 0 disparagement put down leased Equipment accrued derogation chartered Equipment 55,000. 00* 55,000. 00 275,000. 00 65,949. 37 275,000. 00 65,949. 57 20,905. 06* 20,905. 06 *The lessee depreciates the asset using the straight-line method over the lease term because there is no transfer of ownership or bargain purchase option, resulting in annual depreciation of $55,000 ($275,000 ? 5). RE21-6 PV of lease payments = $25,000 x 6. 710081 = PV of single sum of $4,000 = $4,000 x 0. 463193 = give in value of minimum lease payments RE21-7 PV of lease payments = $25,000 x 6. 710081 = PV of single sum of $20,000 = $20,000 x 0. 63193 = Present value of minimum lease payments RE21-8 (a) (b) (c) Sales-type lease Direct financing lease Operating lease $167,752 9,264 $177,016 $167,752 1,853 $169,605 21-10 RE21-9 Jan, 1 Lease due ($65,949. 37 x 5) Equipment honorary saki Leases Dec. 31 specie Lease due unearned kindle Leases (0. 10 x $250,000) pertain tax revenue Leases *($329,746. 85 $79,746. 85) x 0. 10 RE21-10 Jan, 1 Lease due Sales revenue enhancement honorary raise Leases Cost of Asset undertake Merchandise Inventory (or Equipment Held for Lease) Dec. 31 bullion Lease due honorary entertain Leases (0. 0 x $250,000) bet tax Leases *($329,746. 85 $79,746. 85) x 0. 10 329,746. 85 329,746. 85 250,000. 00 79,746. 85 65,949. 37 25,000. 00 65,949. 37 25,000. 00* 250,000. 00 79,746. 85 200,000. 00 200,000. 00 65,949. 37 25,000. 00 65,949. 37 25,000. 00* 21-11 SOLUTIONS TO EXERCISES Note to teacher Although students may use their calculators or software to make the various present value calc ulations, any present value calculations in the following solutions to exercises and problems are based on the factors from the appropriate put overs in the TVM Module of the book. E21-1 Criteria 1. . 3. 4. Transfer of ownership at end of lease Bargain purchase option 1. finding of Lease Classification Met No No No Remarks Reverts to lessor Lease term is 75% or more of economic life Present value of lease payments is 90% or more of fair value 20% ( 10 year lease life ) 50 year economic life) No PV is $485,098. 79* or 24% of the fair value *PV = ( yearbook lease payment annual executory costs) x PV factor for 10 payments at 14% = ($100,000 $7,000) x 5. 216116 = $485,098. 79 The lease is an operating lease, since none of the above criteria are met. 2. 2010 Dec. 2011 Dec. E21-2 1. . 31 Rent outgo hard cash Rent Expense cash 100,000 100,000 31 100,000 100,000 1. inclination of Lease Classification Criteria Transfer of ownership at end of lease Bargain purchase option Met No No R emarks 21-12 E21-2 (continued) 3. 4. Criteria Lease term is 75% or more of economic life Present value of lease payments is 90% or more of fair value Met Yes Remarks 100% Yes 100% The lease is a capital lease, since at least one of the Column A criteria is met. 2. Present value = Lease payments x PV factor for 5 payments at 12% (asset and liab) = $83,222. 92 x 3. 604776 = $300,000 (rounded) 3. 1) find January 1, 2010 declination 31, 2010 declination 31, 2011 celestial latitude 31, 2012 celestial latitude 31, 2013 declination 31, 2014 aColumn synopsis of Lease Payments and evoke Expense for the Sax familiarity (2) Lease Payment Required $83,222. 92 83,222. 92 83,222. 92 83,222. 92 83,222. 92 (3) (4) (5) interestingness Expense lessening at 12% on of Lease equaliser of certificate of indebtedness balance wheela indebtednessb Obligationc $300,000. 00 $36,000. 00 $47,222. 92 252,777. 08 30,333. 25 52,889. 67 199,887. 41 23,986. 49 59,236. 43 140,650. 98 16,878. 12 66,344. 8 0 74,306. 18 8,916. 74 74,306. 18 -0- 5 at beginning of year x 12%. Column 3. alance Column 4. 1 hired Equipment Capital Lease Obligation Capital Lease Obligation following Expense (12% x $300,000) gold 300,000 47,222. 92 36,000. 00 b$83,222. 92 cPrevious 4. 2010 Jan. Dec. 300,000 31 83,222. 92 21-13 E21-2 (continued) 4. (continued) Dec. 31 disparagement Expense undertake Equipment roll up dispraise contract Equipment ($300,000. 00 ? 5) Capital Lease Obligation interest Expense (12% x $252,777. 08) specie Depreciation Expense Leased Equipment amass Depreciation Leased Equipment 60,000 60,000 52,889. 67 30,333. 25 2011 Dec. 31 83,222. 92 31 60,000 60,000 5. Under U. S.GAAP, the Sax go with would classify the lease as an operating lease. The lease does not meet either of the first two criteria. The third measuring is not met since the 3-year lease life is 60% of the economic life of 5 years. The fourth criterion is also not met since the present value of the lease payment s of $264,201 ($110,000 x 2. 401831) is 88. 1% of the fair value of $300,000. Therefore, the lease would be an operating lease. Under IFRS, the Sax caller-out would have to exercise judgment but it is likely that it would classify the lease as a finance lease since two of the indicators would probably be considered to be met.The present value of 88. 1% is probably substantially all of the fair value of the asset. Also, it could be argued that 60% is the major part of the economic life of the asset. E21-3 1. Application of Criteria for Determination of Lease Classification from Lessees Viewpoint Group I Criteria 1. 2. 3. 4. Transfer of ownership Bargain purchase option Lease term is 75% or more of economic life Present value of lease payments is 90% or more of fair value* Met No No Yes 100% Remarks Yes 100% = $20,000 x PV factor for 4 payments in derive at 12% = $20,000 x 3. 401831 = $68,036. 62 21-14 *PV of minimum lease paymentsE21-3 (continued) 1. (continued) Since the lease mee ts at least one of the Column A criteria, it is a capital lease. 2. (1) outline of Lease Payments and bear on Expense for the Adden gild (2) (3) (4) Balance of Capital Lease Obligation $68,036. 62 48,036. 62a 53,801. 01c 33,801. 01 37,857. 13 17,857. 13 20,000. 00 0 booking January 1, 2010 January 1, 2010 celestial latitude 31, 2010 January 1, 2011 celestial latitude 31, 2011 January 1, 2012 December 31, 2012 January 1, 2013 a$68,036. 62 b$48,036. 62 c$48,036. 62 dAdjusted pursuit at 12% Annual Lease on Un remunerative Payment Obligation Before the initial payment $20,000. 00 0 0 $5,764. 9b 0 20,000. 00 4,056. 12 0 0 20,000. 00 2,142. 87d 0 0 20,000. 00 $20,000 x 12% + $5,764. 39 for $0. 01 rounding illusion 1 1 Leased Equipment Capital Lease Obligation Capital Lease Obligation specie stake Expense increase evoke on Capital Lease Obligation policy Expense retention Tax Expense Cash 68,036. 62 20,000 5,764. 39 5,764. 39 1,500 6,000 3. 2010 Jan. 68,036. 62 20,000 Dec. 31 3 1 7,500 21-15 E21-3 (continued) 3. (continued) Dec. 31 Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($68,036. 62 ? 4) Accrued entertain on Capital Lease Obligation Capital Lease Obligation Cash interest Expense Accrued provoke on Capital Lease Obligation Insurance Expense quality Tax Expense Cash Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment 17,009. 16 17,009. 16 2011 Jan. 1 5,764. 39 14,235. 61 4,056. 12 20,000. 00 Dec. 31 4,056. 12 1,300 5,500 31 6,800 31 17,009. 16 17,009. 16 E21-4 1. rental receipt = = Fair value of assets PV factor for 8 receipts at 14% $500,000 4. 638864 = $107,785. 01 21-16 E21-4 (continued) 2. abstract of Lease Payments reliable and cheer revenue enhancement pull in by the Rexon high society (1) (2) Annual Lease Payment accredited $107,785. 01 107,785. 01 107,785. 01 107,785. 1 107,785. 01 107,785. 01 107,785. 01 107,785. 01 (3) lodge in taxation at 14% on gain enthronization $70,000. 00a 64,710. 10 58,679. 61 51,804. 86 43,967. 63 35,033. 20 24,847. 95 13,236. 73f (4) come in of shed light on investment Recovered $37,785. 01b 43,074. 91 49,105. 40 55,980. 15 63,817. 38 72,751. 81 82,937. 06 94,548. 28 (5) Lease receivable $862,280. 08 754,495. 07c 646,710. 06 538,925. 05 431,140. 04 323,355. 03 215,570. 02 107,785. 01 -0(6) honorary delight Leases $362,280. 08 292,280. 08d 227,569. 98 168,890. 37 117,085. 51 73,117. 88 38,084. 68 13,236. 73 -0(7) wage enthronement $500,000. 00 462,214. 99e 419,140. 08 370,034. 8 314,054. 53 250,237. 15 177,485. 34 94,548. 28 -0- get a line January 1, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 a$500,000 21-17 x 14% $70,000. 00 $107,785. 01 $70,000. 00 b$107,785. 01 c$862,280. 08 d$362,280. 08 e$500,000 fAdjusted $37,785. 01 for $0. 03 rounding error 21-17 E21-4 (continued) 3. 2010 Jan. 1 Lease receivable Equipment honorary Interest Leases Cash Lease due unearned Interest Leases Interest revenue Leases Cash Lease Receivable Unearned Interest Leases Interest revenue Leases 862,280. 8 500,000. 00 362,280. 08 107,785. 01 70,000 Dec. 31 31 107,785. 01 70,000 2011 Dec. 31 31 107,785. 01 64,710. 10 107,785. 01 64,710. 10 E21-5 Proof that the yield is 1% PVn=48, i=1% is not given up in text it is 37. 973959 thus PV of lease payments received = Monthly lease payment x PV factor for 48 receipts at 1% = $1,600 x 37. 973959 = $60,758 (This is not required for the problem) 2010 Jan. 2 Lease Receivable Equipment Unearned Interest Leases Cash Lease Receivable Unearned Interest Leases Interest tax income Leases 1% x ($76,800 $16,042), (rounded) 76,800 0,758 16,042 1,600 31 1,600 31 608 608 21-18 E21-6 1. Annual lease payment = Cost of the equipmet PV factor for 5 years in advance at 14% = $30,000 3. 913712 = $7,665. 36 summary Table (1) Lessee Company (2) Lease Payment Required Lease term o f a contract Collected (3) Interest at 14% on Unpaid Obligation Interest at 14% on Net enthronement (4) Balance of Lease Obligation Net Investmenta Lessor Company leave January 1, 2010 January 1, 2010 $7,665. 36 December 31, 2010 0 January 1, 2011 7,665. 36 December 31, 2011 0 January 1, 2012 7,665. 36 December 31, 2012 0 January 1, 2013 7,665. 6 December 31, 2013 0 January 1, 2014 7,665. 36 aPrevious balance Column 2 + Column 3 b$22,334. 64 cAdjusted 0 $3,126. 85b 0 2,491. 46 0 1,767. 11 0 941. 38c 0 $30,000. 00 22,334. 64 25,461. 49 17,796. 13 20,287. 59 12,622. 23 14,389. 34 6,723. 98 7,665. 36 0 x 14% for $0. 02 rounding error 21-19 E21-6 (continued) Date 01/01/10 12/31/10 12/31/11 12/31/12 12/31/13 1$7,665. 36 Lease Receivable $38,326. 801 30,661. 44 22,996. 08 15,330. 72 7,665. 36 x5 $30,000. 00 $3,126. 85 Unearned Net = Interest Leases Investment $8,326. 802 5,199. 953 2,708. 49 941. 38 0 $30,000. 00 25,461. 9 20,287. 59 14,389. 34 7,665. 36 2$38,326. 80 3$8,326. 80 2. Lessor Leasing Company 2010 Jan. 1 Lease Receivable ($7,665. 36 x 5) Equipment Unearned Interest Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases 38,326. 80 30,000. 00 8,326. 80 7,665. 36 3,126. 85 1 Dec. 31 7,665. 36 3,126. 85 Lessee Company 2010 Jan. 1 1 Leased Equipment Capital Lease Obligation Capital Lease Obligation Cash 30,000 7,665. 36 30,000 7,665. 36 21-20 E21-6 (continued) 2. (continued) Dec. 31 Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($30,000 ? ) Interest Expense Accrued Interest on Capital Lease Obligation Executory Costs (Expenses) Cash 6,000 6,000 3,126. 85 3,126. 85 500 500 31 31 E21-7 1. selling price (fair value and the net investment) = $50,000 (PVn = 4, i = 12%) = $50,000 x 3. 037349 = $151,867. 45 2. Summary of lease receipts and interest revenue Information needed to work table Gross investment = Annual lease payment received x Number of payments = $50,000 x 4 = $200,000 Initial PV of the in vestment PV of lease payments (see 1) = $151,867. 45 Unearned interest revenue = Gross investment Initial PV of investment = $200,000 $151,867. 5 = $48,132. 55 = $151,867. 45 = $130,000. 00 Sales price = PV of minimum lease payments Cost of asset leased = Cost of equipment 21-21 E21-7 (continued) 2. (continued) Gross profit = Sales price Cost of asset leased = $151,867. 45 $130,000. 00 = $21,867. 45 (Table follows indispensability 3) 3. 2010 Jan. 1 Lease Receivable Sales Unearned Interest Leases Cost of Asset Leased Equipment Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases 200,000. 00 151,867. 45 48,132. 55 130,000. 00 50,000 18,224. 09 1 Dec. 31 31 2011 Dec. 30,000. 00 50,000 18,224. 09 31 31 50,000 14,410. 98 50,000 14,410. 98 21-22 E21-7 (continued) 2. Summary of Lease Payments acquire and Interest Revenue realise by the Berne Company (1) (2) Annual Lease Payment Received $50,000 50,000 50,000 50,000 (3) Interest Revenue at 12% on Net Investment $18,224. 09a 14,410. 98 10,140. 30 5,357. 18f (4) Amount of Net Investment Recovered $31,775. 91b 35,589. 02 39,859. 70 44,642. 82 (5) Lease Receivable $200,000 150,000c 100,000 50,000 -0(6) Unearned Interest Leases $48,132. 55 29,908. 46d 15,497. 48 5,357. 18 -0(7) Net Investment $151,867. 45 120,091. 54e 84,502. 52 44,642. 2 -0- Date January 1, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 a$151,867. 45 b$50,000 21-23 x 0. 12 $18,224. 09 $50,000 $18,224. 09 $31,775. 91 c$200,000 d$48,132. 55 e$151,867. 45 fAdjusted for $0. 04 rounding error 21-23 E21-8 1. Selling price (fair value) = $100,000 (PV in advance) n = 5, i = 14% = $100,000 (3. 913712) = $391,371. 20 2. Summary of lease payments received and interest revenue Information needed to prepare table Gross investment 20-24 = = = (Annual lease payment received x Number of payments) + Unguaranteed residual value ($100,000 x 5) + $20,000 $520,000Initial present value of the investment PV of lease payments (see part 1) PV of unguaranteed residual value $20,000 x PV of a single sum for 5 years at 14% $20,000 x 0. 519369 Total initial PV (this is also the net investment) Unearned interest leases $391,371. 20 10,387. 38 $401,758. 58 = Gross investment Initial PV of the investment = $520,000. 00 $401,758. 58 = $118,241. 42 Sales price = = Present value of lease payments $391,371. 20 (see part 1) = Cost of asset PV of the unguaranteed residual value = $313,000. 00 $10,387. 38 = $302,612. 62 Cost of asset leased 21-24 E21-8 (continued) 2. continued) Gross profit = = = Sales price Cost of asset leased $391,371. 20 $302,612. 62 $ 88,758. 58 Summary of Lease Payments Received and Interest Revenue Earned by the Edom Company (1) (2) Annual Lease Payments Received $100,000. 00 100,000. 00 100,000. 00 100,000. 00 100,000. 00 (3) Interest Revenue at 14% on Net Investment (4) Lease Receivable $520,000. 00a 420,000. 00 320,000. 00 220,000. 00 120,000. 00 20,000. 00 (5) Unearned Interest Leases $118,241. 42b 75,995. 22 41,834. 55 16,891. 39 2,456. 18 0 (6) Net Investment $401,758. 58 301,758. 58 344,004. 78d 244,004. 78 278,165. 45 178,165. 45 203,108. 61 103,108. 61 117,543. 2 17,543. 82 20,000. 00f Date Jan. 1, 2010 Jan. 1, 2010 Dec. 31, 2010 Jan. 1, 2011 Dec. 31, 2011 Jan. 1, 2012 Dec. 31, 2012 Jan. 1, 2013 Dec. 31, 2013 Jan. 1, 2014 Dec. 31, 2014 a($100,000 b$520,000 $42,246. 20c 34,160. 67 24,943. 16 14,435. 21 2,456. 18e x 5) + $20,000 x 14% + $42,246. 20, or $420,000 $75,995. 22 residual value Lease Receivable Cost of Asset Leased Sales Equipment (or Inventory) Unearned Interest Leases 520,000. 00 302,612. 62 $401,758. 58 c$301,758. 58 d$301,758. 58 eAdjusted for $0. 05 rounding error fUnguaranteed 3. 2010 Jan. 1 391,371. 20 313,000. 00 118,241. 42 21-25 E21-8 (continued) 3. (continued) Jan. Dec. 011 Jan. Dec. E21-9 Summary Table for First 3 Months (1) Bullard Company Month Anson Company Month Beginning of 1 Beginning of 1 prohibit of 1 Beginning of 2 End of 2 Beginning of 3 End of 3 (2) Lease Payment Required (3) Interest Expense (4) Balance of Lease Obligation 1 31 Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases 100,000 42,246. 20 100,000 42,246. 20 1 31 100,000 34,160. 67 100,000 34,160. 67 Lease Receipt $2,000 0 2,000 0 2,000 0 Interest Revenue 0 $588b 0 574 0 560 Net Investmenta $60,817 58,817 59,405c 57,405 57,979 55,979 56,539 1-26 E21-9 (continued) Receivable $70,0001 68,000 66,000 64,000 1($2,000 2$58,817 b1% aLease Unearned = Interest Leases $9,183 8,595 8,021 7,461 Net Investment $60,8172 59,405 57,979 56,539 x 35) + $2,000 + $588 Lease Receivable Sales ($58,817 + $2,000) Unearned Interest Leases ($72,000 $60,817) Cost of Asset Leased Merchandise Inventory 72,000 60,817 11,183 50,000 2,000 588 2,000 574 2,000 560 50,000 2,000 588 2,000 574 2,000 560 x $58,817 c$58,817 1. At inception Initial receipt At end of 1st month Cash Lease Receivable Unearned Interest Leases Interest Revenue LeasesSecond Cash Installment Lease Receivable At end of Unearned Interest Leases 2nd month Interest Revenue Leases Third Cash installment Lease Receivable At end of 3rd month Unearned Interest Leases Interest Revenue Leases 21-27 E21-9 (continued) 2. Computation of Lessees Obligation Using the Implicit Interest Rate PV of lease payments = $ 2,000 + PV of remaining 35 payments of $2,000 each at 1% = $ 2,000 + $58,817 = $60,817* *Note By definition, the present value of the lease payments equals the initial payment plus the present value of the remaining lease payments, since the initial payment is at the beginning of the period.At inception Initial payment At end of 1st month Leased Equipment Capital Leases Obligation Capital Lease Obligation Cash Interest Expense Accrued Interest on Capital Lease Obligation Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($60,817 ? 36) Second Accrued Interest on installment Capital Lease Obligation Capital Lease Obligation Cash At end of Interest Expense 2nd month Accrued Interest on Capital Lease Obligation Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment 60,817 2,000 588 588 1,689 1,689 588 1,412 574 574 1,689 1,689 60,817 2,000 ,000 21-28 E21-9 (continued) 2. (continued) Third Accrued Interest on installment Capital Lease Obligation Capital Lease Obligation Cash At end of 3rd month Interest Expense Accrued Interest on Capital Lease Obligation Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment E21-10 Computation of the effect on income ahead income taxes using the sales-type lease method Sales = PV of lease payments receivable = (PV factor for 8 payments in advance at 12%) x $60,000 = 5. 563757 x $60,000 = $333,825 Cost of asset leased = = Cost of the property $275,000 574 1,426 560 560 1,689 1,689 ,000 21- 29 E21-10 (continued) Interest revenue leases = 12% x (Lease receivable Initial payment) Unearned interest leases = 12% x ($60,000 x 8) $60,000) (Lease rec. Sales) = 12% x ($420,000 $146,175) = $32,859 Incremental effect on income before income taxes Sales Less Cost of asset leased Gross margin Add Interest revenue Incremental revenue recognized $333,825 (275,000) $ 58,825 32,859 $ 91,684 Computation of the effect on income before income taxes using the operating lease method Rental revenue Depreciation expense = $60,000. 0 = = Cost Residual Value economic life $275,000 $0 8 = $34,375 Incremental effect on income before income taxes Rental revenue $60,000 Less Depreciation expense (34,375) $25,625 Effect on income before income taxes Sales-type lease income Operating lease income Income before income taxes $91,684 (25,625) $66,059 understated 21-30 E21-11 1. Computation of Income Before Income Taxes Derived by Reuben Company for Year Ended December 31, 2010 Rental revenue Ma intenance expense Depreciation expense Income before income taxes *10/12 x $180,000 $900,000 150,000* (20,000) (90,000) $ 40,000 ? 10 (It should be depreciated for a full year) 2. Rent expense = 10/12 x $180,000 = $150,000 E21-12 1. Application of Criteria for Determination of Lease Classification from Lessors Viewpoint Column A Criteria 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Met Yes No Yes 80% ( Remarks Lease term is 75% or more of economic life 4 year lease life ) 5 year economic life 4. Present value of lease payments is 90% or more of fair value Column B Criteria 1. Collectibility assured 2.No uncertainties Yes Present value is $8,400, or 100% of the fair value Yes Yes Since the lease meets at least one of the Column A criteria and both of the Column B criteria, and there is no dealers profit (PV of lease payments Cost of car = $8,400 $8,400 = $0), the transaction should be classified as a direct financing lease. 21-31 E21-12 (continued) 2. Summ ary of lease payments received and interest revenue Computation of amount of lease receipts Yearly lease receipt = Cost of the car PV factor for 4 payments at 10% $8,400 3. 169865 = $2,649. 96 (Table follows Requirement 3) 3. 2010 Jan. 1 1 automobile Held for Lease Cash Lease Receivable Automobile Held for Lease Unearned Interest Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases (from table) Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases (from table) 8,400. 00 10,599. 84 8,400. 00 8,400. 00 2,199. 84 2,649. 96 Dec. 31 31 2,649. 96 840. 00 840. 00 2,649. 96 659. 00 659. 00 2011 Dec. 31 31 2,649. 96 21-32 E21-12 (continued) 2.Summary of Lease Payments Received and Interest Revenue Earned by the Ravis Rent-A-Car Company (by Interest Method) (1) (2) Annual Lease Payments Received $2,649. 96 2,649. 96 2,649. 96 2,649. 96 (3) Interest Revenue at 10% on Net Investment $840. 00a 659. 00 459. 90 240. 94f (4) Amount of Net Investment Recove red $1,809. 96b 1,990. 96 2,190. 05 2,409. 02 (5) Lease Receivable $10,599. 84 7,949. 88c 5,299. 92 2,649. 96 -0(6) Unearned Interest Leases $2,199. 84 1,359. 84d 700. 84 240. 94 -0(7) Net Investment $8,400. 00 6,590. 04e 4,599. 08 2,409. 02Date January 1, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 a$8,400. 00 b$2,649. 96 21-33 x 10% $840. 00 $2,649. 96 $840. 00 $1,809. 96 c$10,599. 84 d$2,199. 84 e$8,400. 00 fAdjusted for $0. 04 rounding error 21-33 E21-13 1. Present value of lease payments = $10,000 x PV factor for 6 payments at 10% = $10,000 x 4. 355261 = $43,552 (rounded down for simplicity) = $50,000 fair value of the machine $43,552 = $6,448 = $6,448 x FV of 1 factor for 6 periods at 10% = $6,448 x 1. 771561 = $11,421 (rounded) Present value of residual valueResidual value at the end of the lease term 2. 20-34 Since the first three criteria are not met, the classification of the lease depends on the fourth criterion. A guaranteed residual value is not included in the minimum lease payments. Therefore, Baker Company would classify the lease as a capital lease because the fourth criterion is met as follows Present value of minimum lease payments = = $43,552 + $6,448 $50,000, or 100% of the fair value of the machine 3. Since the first three criteria are not met, the classification of the lease depends on the fourth criterion.An unguaranteed residual value is included in the minimum lease payments. Therefore, Baker Company would classify the lease as an operating lease because the fourth criterion is not met as follows Present value of minimum lease payments = $43,552, or 87. 1% of the fair value of the machine E21-14 1. 2010 Jan. 1 Cash Land Unearned Profit on Sales-Leaseback Leased Land Capital Lease Obligation Insurance and Property Tax Expense Cash 31 Capital Lease Obligation Interest Expense Leases (14% x $2,500,000) Cash 21-34 2,500,000 2,000,000 500,000 2,500,000 12,000 1 During the year Dec. ,500,000 12,000 7,0 07 350,000 357,007 E21-14 (continued) 2. The $500,000 unearned profit is amortized by the straight-line method over the 25 year term of the lease. The yearly entry is 2010 Dec. 31 Unearned Profit on Sales Leaseback Realized Profit on Sales Leaseback 20,000 20,000 21-35 SOLUTIONS TO PROBLEMS P21-1 1. Application of Criteria for Determination of Lease Classification Column A Criteria 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Met No No No Remarks Lease term is 75% or more of economic life 5 year lease life 50% ( ) 10 year economic lifePV of $268,685. 58* is 88% of fair value 4. Present value of lease payments is 90% or more of fair value *PV No = (Yearly lease payments Executory costs) x PV factor for 5 payments in advance at 12% = ($70,000 $3,450) x 4. 037349 = $66,550 x 4. 037349 = $268,685. 58 This lease is an operating lease for both the Alice Company (lessee) and the select Equipment Company (lessor). Reasons None of the Column A criteria are met. 2. Alice Company (lessee) 2010 Jan. 1 Rent Expense Cash 70,000 70,000 21-36 P21-1 (continued) 2. (continued) Superior Equipment Company (lessor) 2011 Jan.During the year Dec. 31 1 Cash Rental Revenue Property Tax Expense Maintenance Expense Insurance Expense Cash 70,000 650 1,600 1,200 70,000 3,450 Depreciation Expense Equipment 49,500 Accumulated Depreciation Equipment ($500,000 $5,000) ? 10 Application of Criteria for Determination of Lease Classification 49,500 3. Column A Criteria 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Met No No No Remarks Lease term is 75% or more of economic life 5 year lease life 50% ( ) 10 year economic life PV of $305,000* (rounded) 100% of fair value . Present value of lease payments is 90% or more of fair value *PV Yes = (Yearly lease payments Executory costs) x PV factor for 5 payments in advance at 12% + PV of guaranteed residual value = = = = ($70,000 $3,450) x 4. 037349 + ($64,000 x 0. 567427) ($66,550 x 4. 037349) + $36,315. 33 $268,685. 57 + $36,315. 33 $305,000 (rounded) This lease is a capital lease for both the Alice Company (lessee) and the Superior Equipment Company (lessor). Reasons The lessee would classify the lease as a capital lease because one of the Column A criteria is met. The lessor would classify the lease as a direct financing lease because (a) one of the Column A criteria is met, (b) both of the Column B criteria are met, and (c) there is no profit at the inception of the lease (fair value = present value of the minimum lease payments). 21-37 P21-1 (continued) 3. (continued) Alice Company (lessee) 2010 Jan. 1 1 Leased Equipment Capital Lease Obligation Executory Costs Expense Capital Lease Obligation Cash Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($305,000 $64,000) ? Interest Expense 12% x ($305,000 $66,550) Accrued Interest on Capital Lease Obligation Executory Costs Expense Accrued Interest on Capital Lease Obligation Capital Leas e Obligation Cash Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment Interest Expense 12% x ($305,000 $66,550 $37,936) Accrued Interest on Capital Obligation 305,000 3,450 66,550 305,000 70,000 Dec. 31 48,200 48,200 28,614 28,614 3,450 28,614 37,936 31 2011 Jan. 1 70,000 Dec. 31 48,200 48,200 24,061. 68 24,061. 68 31 21-38 P21-1 (continued) 3. continued) 2014 Dec. 31 Capital Lease Obligation Cash 64,000 64,000 Superior Equipment Company (lessor) 2010 Jan. 1 1 Equipment Leased to Others Cash Lease Receivable ($66,550 x 5 + $64,000) Equipment Leased to Others Unearned Interest Leases Cash Lease Receivable Property Tax Expense Maintenance Expense Insurance Expense Cash Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Property Tax Expense Maintenance Expense Insurance Expense Cash Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable 305,000 305,000 396,750 05,000 91,750 66,550 1 During The Year Dec. 31 2011 Jan. Duri ng The Year Dec. 31 2014 Jan. 66,550 650 1,600 1,200 28,614 3,450 28,614 1 66,550 650 1,600 1,200 24,061. 68 66,550 3,450 24,061. 68 1 64,000 64,000 21-39 P21-2 1. Application of Criteria for Determination of Lease Classification Column A Criteria 1. 2. 3. 4. Transfer of ownership at end of lease Bargain purchase option Lease term is 75% or more of economic life Present value of lease payments is 90% or more of fair value Met No Yes Yes 100% Present value is $185,090. 68 or 100% of fair value Remarks YesThis is a sales-type lease for Ballieu Company, since one or more of the Column A criteria are met, both of the Column B criteria are met, and there is a dealers profit (PV of lease payments Cost of asset = $185,090. 68 $150,000 = $35,090. 68) 2. (1) Two-Year Table of Lease Payment Receipts and Interest Revenue Recognition (2) Annual Lease Payments Received $35,000. 00 35,000. 00 (3) Interest Revenue at 14% on Net Investment (4) Lease Receivable $280,000. 00a 245,000. 00 210,000. 0 0 (5) Unearned Interest Leases $94,909. 32b 73,896. 62 (6) Net Investment $185,090. 8 150,090. 68 171,103. 38d 136,103. 38 155,157. 85 Date Jan. 1, 2010 Jan. 1, 2010 Dec. 31, 2010 Jan. 1, 2011 Dec. 31, 2011 a$35,000 $21,012. 70c 19,054. 47 x8 $185,090. 68 x 14% + $21,012. 70 b$280,000 c$150,090. 68 d$150,090. 68 21-40 P21-2 (continued) 2. (continued) 2010 Jan. 1 Lease Receivable ($35,000 x 8) Sales Unearned Interest Leases ($280,000 $185,090. 68) Cost of Asset Leased Specialty Equipment (Inventory) Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases 280,000. 0 185,090. 68 94,909. 32 1 1 Dec. 2011 Jan. Dec. 3. 31 150,000. 00 35,000 21,012. 70 150,000. 00 35,000 21,012. 70 1 31 35,000 19,054. 47 35,000 19,054. 47 The lessor must disclose a. A general description of the leasing arrangements b. (1) The components of the net investment at the date of each balance sheet presented (a) The future lea se payments to be received (b) The unearned interest revenue leases (2) Future lease payments to be received for each of the 5 succeeding fiscal years as of the date of the latest balance sheet presented P21-3 1.Present value = Lease payments x PV factor for 5 payments at 12% (asset and liab) = $83,222. 92 x 3. 604776 = $300,000 (rounded) 21-41 P21-3 (continued) 2. (1) Date January 1, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 a$300,000 Summary Table of Lease Payments and Interest Expense for Timmer Company (2) Lease Payment Required $83,222. 92 83,222. 92 83,222. 92 83,222. 92 83,222. 92 (3) Interest Expense at 12% on Obligation Balancea $36,000. 00a 30,333. 25 23,986. 49 16,878. 12 8,916. 74d (4) Reduction of Lease Obligation $47,222. 2b 52,889. 67 59,236. 43 66,344. 80 74,306. 18 (5) Balance of Lease Obligation $300,000. 00 252,777. 08c 199,887. 41 140,650. 98 74,306. 18 -0- x 12% $36,000. 00 $47,222. 92 b$83,222. 92 c$300,000 . 00 3. 2010 Jan. Dec. 1 31 Leased Equipment Capital Lease Obligation Capital Lease Obligation Interest Expense Cash Insurance Expense Property Tax Expense Cash Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($300,000. 00 ? 5) Capital Lease Obligation Interest Expense Cash Insurance Expense Property Tax Expense Cash 21-42 300,000 47,222. 2 36,000. 00 3,760 5,440 300,000 83,222. 92 31 9,200 31 60,000 60,000 52,889. 67 30,333. 25 3,100 5,330 2011 Dec. 31 83,222. 92 31 8,430 P21-3 (continued) 3. (continued) Dec. 31 Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment TIMMER COMPANY Balance Sheet (Partial) December 31, 2010 Assets Property, Plant, and Equipment Leased property less accumulated amortization $240,000. 00 (Note X) a$83,222. 92 60,000 60,000 4. Liabilities occurrent Capital lease obligation Noncurrent Capital lease obligation (Note X) $ 74,306. 17a,c $178,470. 1b,c x 0. 892857 $74,306. 17 b$252,777. 08 cThese amo unts computed by the change in present value approach are $52,889. 67 and $199,887. 41, respectively Under U. S. GAAP, the Timmer Company would classify the lease as an operating lease. The lease does not meet either of the first two criteria. The third criterion is not met since the 3-year lease life is 60% of the economic life of 5 years. The fourth criterion is also not met since the present value of the lease payments of $269,507 ($120,000 x 2. 245890) is 89. 8% of the fair value of $300,000.Therefore, the lease would be an operating lease. Under IFRS, the Timmer Company would have to exercise judgment but it is likely that it would classify the lease as a finance lease since two of the indicators would probably be considered to be met. The present value of 89. 8% is probably substantially all of the fair value of the asset. Also, it could be argued that 60% is the major part of the economic life of the asset. 5. 21-43 P21-4 1. Summary Table of Lease Payments Received and Intere st Revenue Earned by the Calden Company (1) (2) Lease Payment Received $65,000. 0 65,000. 00 65,000. 00 65,000. 00 65,000. 00 65,000. 00 65,000. 00 65,000. 00 (3) Interest Revenue at 15% on Net Investment $46,203. 16c 43,383. 63 40,141. 17 36,412. 35 32,124. 20 27,192. 83 21,521. 76 14,999. 87h (4) Reduction of Net Investment $18,796. 84d 21,616. 37 24,858. 83 28,587. 65 32,875. 80 37,807. 17 43,478. 24 50,000. 13 (5) Lease Receivable $570,000a 505,000e 440,000 375,000 310,000 245,000 180,000 115,000 50,000 (6) Unearned Interest Leases $261,978. 97 215,775. 81f 172,392. 18 132,251. 01 95,838. 66 63,714. 46 36,521. 63 14,999. 7 -0(7) Net Investment $308,021. 03b 289,224. 19g 267,607. 82 242,748. 99 214,161. 34 181,285. 54 143,478. 37 100,000. 13 50,000. 00i Date January 1, 2010 December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 a$570,000 21-44 is the undiscounted value of the lease payments p lus the unguaranteed residual value is the present value of the lease payments plus the present value of the unguaranteed residual x 15% b$308,021. 03 value c$308,021. 03 d$65,000. 00 e$570,000 $46,203. 16 $46,203. 16 $18,796. 84 residual value $65,000 f$261,978. 97 g$308,021. 03 hAdjusted for $0. 15 rounding error iUnguaranteed 21-44 P21-4 (continued) 2. Criteria for direct financing lease Application of Criteria for Determination of Lease Classification Column A Criteria 1. Transfer of ownership at end of lease 2. Bargain purchase option 3. Lease term is 75% or more of eonomic life 4. Present value of lease payments is 90% or more of fair value *PV of minimum lease payments Met No No Yes 89% ( 8 year lease life ) 9 year economic life Remarks 0-45 Yes PV is 94. 7% of the fair value of the leased asset* = $65,000 x PV factor for 8 payments at 15% = $65,000 x 4. 487322 = $291,675. 93 Column B Criteria 1. Collectibility assured 2. No uncertainties Met Yes Yes Remarks The lease is p roperly classified as a direct financing lease because at least one of the Column A criteria is met, both of the Column B criteria are met, and there is no dealers profit. 3. 2010 Jan. 1 1 Equipment Leased to Others Cash Lease Receivable ($520,000 + $50,000) Equipment Leased to Others Unearned Interest Leases 308,021. 3 308,021. 03 570,000 308,021. 03 261,978. 97 21-45 P21-4 (continued) 3. (continued) Dec. 31 31 2011 Dec. Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases CALDER COMPANY Balance Sheet (Partial) Assets incumbent Assets Net investment in direct financing leases (Note X) Noncurrent Assets Net investment in direct financing leases (Note X) a$65,000 65,000 46,203. 16 5,000 46,203. 16 31 31 65,000 43,383. 63 65,000 43,383. 63 2012 Dec. 31 31 65,000 40,141. 17 65,000 40,141. 17 4. December 31, 2011 2010 $ 56,521. 73a,d $ 56,521. 73a,c $211,086. 09b,d $232,702. 46b,c x 0. 869565 $289,224. 19 $56,521. 73 12/31/11 $267,607. 82 $56,521. 73 b12/31/10 cThese amounts computed by the change in present value approach are $21,616. 37 and $267,607. 82, respectively amounts computed by the change in present value approach are $24,858. 83 and $242,748. 99, respectively dThese 21-46 P21-5 1. a) Landlord Company computation of annual rental amount Annual rental amount = = Cost of equipment PV factor for 6 receipts in advance at 14% $300,000 4. 433081 = $67,673. 02 (b) Tenant Company computation of the present value of the lease rights To find the present value of the lease rights, Tenant Company would compute the annual rental payment ($67,673. 02) by the PV factor for 6 periods paid in advance at i%. The percentage i would be the lower of 14% or Tenant Companys additive borrowing rate. This incremental borrowing rate is the additional information needed.Summary Table of Lease Payments Received and Int erest Revenue Recognition for the Landlord Company (1) (2) Annual Lease Payments Received $67,673. 02 67,673. 02 67,673. 02 67,673. 02 67,673. 02 67,673. 02 2. Date Jan. 1, 2010 Jan. 1, 2010 Dec. 31, 2010 Jan. 1, 2011 Dec. 31, 2011 Jan. 1, 2012 Dec. 31, 2012 Jan. 1, 2013 Dec. 31, 2013 Jan. 1, 2014 Dec. 31, 2014 Jan. 1, 2015 a$67,673. 02 (3) Interest Revenue at 14% on Net Investment (4) Lease Receivable $406,038. 12a 338,365. 10 270,692. 08 203,019. 06 135,346. 04 67,673. 02 0 (5) Unearned Interest Leases $106,038. 12b 73,512. 4 45,907. 18 23,911. 52 8,310. 69 0 (6) Net Investment $300,000. 00 232,326. 98 264,852. 76d 197,179. 74 224,784. 90 157,111. 88 179,107. 54 111,434. 52 127,035. 35 59,362. 33 67,673. 02 0 $32,525. 78c 27,605. 16 21,995. 66 15,600. 83 8,310. 69e x6 $300,000. 00 x 14% d$232,326. 98 eAdjusted + $32,525. 78 b$406,038. 12 c$232,326. 98 for $0. 04 rounding error This table would also be commensurate for Tenant Company if Tenants incremental borrowing rate is ? 14% . 21-47 P21-5 (continued) 3. Journal entries Tenant Company (lessee) 2010 Jan. 1 1 During the year Dec. 1 Leased Equipment Capital Lease Obligation Capital Lease Obligation Cash Insurance Expense Property Tax Expense Cash Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment ($300,000 ? 6) Interest Expense Accrued Interest on Capital Lease Obligation Accrued Interest on Capital Lease Obligation Capital Lease Obligation Cash Insurance Expense Property Tax Expense Cash 31 Depreciation Expense Leased Equipment Accumulated Depreciation Leased Equipment Interest Expense Accrued Interest on Capital Lease Obligation 300,000 67,673. 2 700 800 300,000 67,673. 02 1,500 50,000 50,000 32,525. 78 32,525. 78 31 2011 Jan. 1 32,525. 78 35,147. 24 600 750 67,673. 02 During the year Dec. 1,350 50,000 50,000 27,605. 16 27,605. 16 31 21-48 P21-5 (continued) 3. (continued) Landlord Company (lessor) 2010 Jan. 1 1 Equipment Leased to Others Cash Lease Receivable ($67,673. 02 x 6) Equipment Leased to Others Unearned Interest Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases Cash Lease Receivable Unearned Interest Leases Interest Revenue Leases 300,000. 0 406,038. 12 300,000. 00 300,000. 00 106,038. 12 67,673. 02 32,525. 78 1 Dec. 2011 Jan. Dec. 4. 31 67,673. 02 32,525. 78 1 31 67,673. 02 27,605. 16 67,673. 02 27,605. 16 Income statements and balance sheets Tenant Company Disclosure (Lessee) Comparative Balance Sheets (Partial) December 31 Assets 2011 2010 Liabilities 2011 2010 Leased equipment less accumulated amortization (Notes 1 and 2) $200,000. 00 $250,000. 00 Current Capital lease obligation $ 67,673. 02 Noncurrent Capital lease obligation 157,111. 88 (Notes 1 and 2) $ 67,673. 02 197,179. 74