财务报表分析与运用 杰拉尔德 课后答案英文版第十一章.docx
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财务报表分析与运用杰拉尔德课后答案英文版第十一章
Chapter11Solutions
Overview:
ProblemLengthProblem#s
{S}1-4,9,11,12,15,16,21,22
{M}5,7,8,10,13,14,17,18,20,23,24
{L}6,19,25
1.{S}(i)Interestexpense=12%x$10,000(beginningbalanceofleaseobligation)=$1,200.
(ii)Theleaseobligationwillbereducedby$100($1,300-$1,200)leavinganobligationof$9,900.
(iii)CashfromOperationswillbereducedbytheinterestpaymentof$1,200.Cashfrominvestingactivitieswillnotbeaffected.(However,thefirmwillreportthecapitalleaseasa“noncashinvestmentandfinancingactivity.”Cashfromfinancingwillbereducedbytheamountoftheprincipalpaymentof$100.
(iv)Underanoperatingleasethereisnoleaseobligationonthebalancesheet.TheonlyeffectonincomeisRentExpenseof$1,300.Similarly,CFOisreducedby$1,300.(CFIandCFFarenotaffected).
2.{S}(i)Inatake-or-payarrangement,acompanycontractstobuyorpayforacertainamountofasupplier’scommodityatapredeterminedpriceoverastatedtimeperiod.Thecompany,byenteringthecontract,incursaneconomicliability.However,sinceitisonlyacontract,noaccountingliabilityisrecordedonthebalancesheet–itisoffbalancesheet.
(ii)Inasaleofreceivable,acompany“sells”itsreceivablestoathird-party,usuallyafinancialinstitution.Typically,thesaleismadeatadiscountedpricefromthefacevalueandthesellermayretainsomeorallofthedefaultrisk.Thesale,insubstance,isafinancingarrangementwiththereceivablesbeingusedascollateral.However,underGAAP,thetransactionistreatedasasaleandthedebtdoesnotappearonthebalancesheet.
(iii)Ajointventurerepresentsaninvestmentof50%orlessbyonecompany(the“investor”)inanothercompany.UnderGAAP,sinceownershipisnotover50%,theassetsandliabilitiesofthejointventureneednotbeconsolidatedwiththeparent’sassetsandliabilities.Hence,anydebttakenonbythejointventureremainsoffbalancesheetevenwhentheinvestorisliableforthedebt.
3.{S}Effectofchoiceofinterestrateonlessee:
9%versus10%
FirstYear
LeaseTerm
(i)
Interestexpense:
Lowerinterestratereducesinterestexpense.
Lower
Lower
(ii)
Amortizationexpense:
Lowerinterestrateincreasespresentvalueofminimumleasepayments,creatinghigherassetamounttobeamortizedoverleaseterm.
Higher
Higher
(iii)
Totalleaseexpense:
Theneteffectforthefirstyeardependsontheleaseamounts;overtheleaseterm,however,totalexpenseequalstotalleasepaymentsregardlessofthechoiceofinterestrate.
Indeterminate
Equal
(iv)
Cashfromoperations:
Lowerinterestrateshiftsexpensefrominteresttoamortization(seeiandii);ascashfromoperationsisdecreasedonlybyinterestexpense,adecreaseininterestexpenseincreasesCFO,bothinthefirstyearandovertheleasterm.
Higher
Higher
(v)
Averageassets:
Lowerinterestrateincreasespresentvalue(seeii)resultinginhigheraverageassets,bothinfirstyearandoverleaseterm.
Higher
Higher
(vi)
Averageliabilities:
Lowerinterestrateincreasespresentvaluerecognizedasliability,bothinfirstyearandoverleaseterm.
Higher
Higher
4.{S}a.Pallavimustcapitalizetheleasebecausetheleaseagreementcontainsabargainpurchaseoption.Notethattheleasealsomeetsoneothercapitalizationcriterion:
Thepresentvalueofminimumleasepaymentsexceeds90%ofthefairmarketvalueoftheequipment(seepartbforcomputations).
b.Thefairmarketvalueoftheassetis$125,000.ThepresentvalueoftheMLPsis$127,785(at8%,thelowerofthelesseeandlessorrates);theassetmustbecapitalizedatthe(lower)fairmarketvalue.(NotethattheleaseobligationisthesumofthepresentvaluesoftheMLPsandthebargainpurchaseoption–thelatterisnotprovided.)
c.Leasesmustbecapitalizedatthelesserofthepresentvalueofleasepaymentsorthefairvalueofthelease;inthiscase,theleasemustbecapitalizedatthefairvalueof$125,000.
d.Theexistenceofthebargainpurchaseoptionrequiresdepreciationovertheestimatedeconomiclifeoftheassetratherthanthe(shorter)leaseterm.
e.Theoptioncreatesthepresumptionthattheassetwillbeheldpasttheexpirationdateofthelease.Otherwiseitmustbeassumedthatuseoftheassetwillreverttothelessoratexpiration,requiringthelesseetodepreciatetheleasedassetoverthe(shorter)leaseterm.
5.{M}a.ThefollowingstatestheeffectsofTolremusingthecapitalleasemethodascomparedwiththeoperatingleasemethod.
(i)Cashfromoperationsishigherasonlytheinterestportionofleaseexpenseisdeductedfromoperatingcashflows;totalleaseexpenseisdeductedforoperatingleases.
(ii)Financingcashflowislowerforcapitallease,aspartofleaserentalistreatedasamortizationofliabilityandclassifiedasfinancingcashoutflow.
(iii)Investingcashflowisnotaffectedbytheleasetreatment.However,thefirmwillreportcapitalleasesinthestatementofcashflows(orafootnote)asnoncashinvestmentactivities.
(iv)Netcashflowreflectstheactualrentalpaymentandisunaffectedbythefinancialreportingtreatmentofthelease.
(v)Debt/equityratioishigherforcapitallease,asitrecordsthepresentvalueofminimumleasepaymentsasdebtandreducesnetincome(andthereforeequity)infirstyear.
(vi)Interestcoverageratioisusually(notalways)lowerforcapitalleasemethod,whichreportsinterestexpensebutalsohigherEBIT,see(vii).Forcoverageratioswellabove1.0,theratiowilldecline.IftheincreaseininterestexpenseexceedstheincreaseinEBIT,theratiowilldeclineevenforfirmswithverylowcoverageratios.
(vii)Operatingincomeislowerforoperatingleasebecausethetotalleasepaymentisanoperatingexpense;forcapitallease,interestportionofleaseexpenseisnonoperating.
(viii)Netincomeishigherforoperatinglease;totalleaseexpense(interestplusdepreciation)ishigherforcapitallease.
(ix)Deferredtaxassetsarehigherforcapitallease;asleasetreatmentfortaxpurposesisunaffectedbyaccountingchoice,capitalleasewillgenerateadeferredtaxassetastaxableincome(operatinglease)exceedspretaxincome(capitallease).
(x)Taxespaidareunaffectedbychoiceofmethod.
(xi)Pretaxreturnonassetsishigherforoperatingleasesaspretaxincomeishigherandnoassetsarereportedastheresultofthelease;acapitalleasereducesincomeandreportsleaseassets.Post-taxreturnonassetsishigherforthesamereasons.
(xii)Pretaxreturnonequity:
bothpretaxincomeandequityarehigherforoperatingthanforcapitalleases.Thehigherpretaxincomeshouldincreasetheratioinallbutexceptionalcases.Post-taxreturnonequityshouldbehigherforsamereason.Howeverasincreaseinpost-taxincomeequals(forfirstyear)increaseinequity,theremaybemoreexceptionalcases.
b.Netincome(viii)willbelowerfortheoperatingleaseafterthe"crossover"point.Astotalnetincomeoverthelifeoftheleaseisunaffectedbytheaccountingchoice,highernetincome(operatinglease)intheearlyyearsmustbeoffsetbylowernetincomeinlateryears.
c.ConsistentuseoftheoperatingleasemethodinplaceofcapitalizationwillnotchangethedirectionoftheeffectsshowninpartA,butwillincreasetheirmagnitude.Inaggregate,newleaseswillkeepTolremfromreachingthecrossoverpointfornetincome,keepingnetincomeandreturnratioshigherthaniftheleaseswerecapitalized.
6.{L}a.andb.
Caramino
Aglianico
Difference
Operatingincome
Depreciationexpense1
Leaserentalexpense
EBIT
Interestexpense2
Earningsbeforetax
Incometaxexpense
Netincome
$20,000
(8,624)
11,376
(2,650)
$8,726
(3,490)
$5,236
$20,000
(10,000)
$10,000
10,000
(4,000)
$6,000
$None(8,624)
10,000
$1,376
(2,650)
$(1,274)
510
$(764)
1Thepresentvalueoftheminimumleasepaymentsis$43,121($10,000+4paymentannuityof$10,000peryearat8%).Assumingzeroresidualvalue,depreciation=$43,121/5=$8,624.
2Interestexpense=8%x($43,121-$10,000)=$2,650
Caramino'sEBITis$1,376higher;Aglianicoreportsrentalexpensebutnodepreciationexpensesinceitdoesnotrecordanasset.Becausetotalleaseexpense(depreciationplusinterest)ishigherthantheleaserental,Caramino'sEBTislowerby$1,274.Afteradeferredincometaxoffsetof$510,Caramino'snetincomeis$764lower.
Caramino'sdeferredtaxdebit(asset)resultsfromthedifferencebetweenfinancialreporting(capitallease)andtaxreporting(operatinglease).The$1,274timingdifferenceresultsinadeferredtaxdebitof$1,274x.40=$510
c.andd.ComparisonofCashFlowStatements
Caramino
Aglianico
Difference
Netincome
Addback:
Depreciationexpense
Otheradjustments:
Deferredtaxes
Interestpayable
Cashfromoperations
Investmentcashflow
Financingcashflow
Netcashflow
$5,236
8,624
$13,860
(510)
2,650
$16,000
-0-
(10,000)
$6,000
$6,000
$6,000
$6,000
-0-
-0-
$6,000
$(764)
8,624
$7,860
(510)
2,650
$10,000
-0-
(10,000)
$-0-
Note:
Weassumethatallrevenuesgeneratedbythefirmhavebeencollectedbytheendoftheyear.
Caraminoreportshighercashfromoperationsby$10,000.Sincethetaxrateis40%,Aglianico(operatingleasefirm)reportsaftertaxoperatingcashoutflowof$6,000.Caramino(capitalleasefirm)paysnointerestbut,sinceitusestheoperatingleasemethodfortaxes,receivesataxdeductionof$4,000fortheannualpaymentof$10,000.Caramino'saftertaxoperatingcashinflow