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

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