Financial statement impacts of postponing purchase

Assignment Help Accounting Basics

Reference no: EM13151501

On October 10, 2005, Mason Engineering Company completed negotiations on a contract for the purchase of new equipment. Under the terms of the agreement, the equipment may be purchased now or Mason may wait until January 10, 2006, to make the purchase. The cost of the equipment is $400,000. It will be financed by a note bearing interest at the market rate of interest. Straight-line depreciation over a ten-year life will be used for book purposes. A double-declining balance over seven years will be used for tax purposes. (One-half year's depreciation will be taken in the year of purchase regardless of the date of purchase.)

Required:

a. Briefly discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm's common stock be affected by any or all of these impacts? Do not assume in your discussion that the postponement will affect revenues or any operating costs, other than depreciation.

b. If the purchase of equipment is postponed briefly discuss how cash flow maybe impacted.

c. Efficient markets assume that stockholder wealth is affected by the amount and timing of cash flows. Which alternate should be considered as more favorate - purchasing before year-end or waiting until the next year? Why?

Reference no: EM13151501

Questions Cloud

Imagine that you work for the maker : Imagine that you work for the maker of a leading brand of low calorie, frozen microwavable food that estimates the following demand equation for its product using date from 26 supermarkets around the country for the month of April.

How much have prices risen between 2000 and 2010 : How much have prices risen between 2000 and 2010? Compare the answers given by the Laspeyres and Passche price indexes.

What volume of ethylene glycol a nonelectrolyte, must added : What volume of ethylene glycol (C2H6O2), a nonelectrolyte, must be added to 12.7 L of water to produce an antifreeze solution with a freezing point of -34.6°C? (The density of ethylene glycol is 1.11 g/cm3, and the density of water is 1.00 g/cm3.)

What is the probability that entire batch wili be rejected : The entire batch will be rejected if at least one of those tested is defective. What is the probability that the entire batch wili be rejected?

Financial statement impacts of postponing purchase : Briefly discuss the financial statement impacts of postponing the purchase of the equipment. Would the market price of the firm's common stock be affected by any or all of these impacts?

Book value method to record the conversion : Use the book value method to record the conversion of $9 million of bonds into common stock with a $10 par value if conversion occurred when the market price of the common was $24 per share, and total convertible debt outstanding amounted to $36 m..

Cyber attacks in public companies" : , analyze the effects of the SEC's data breach disclosure requirement on financial reporting, based on the current language of the requirement. Recommend a change to the disclosure requirements to strengthen public company disclosures of cyberattacks..

Find probability of producing more than three faulty chips : Using suitable probability model, calculate the probability of producing more than 3 faulty chips per hour.Explain the reasons for choosing your probability model.

Reasonable allocation of the amount : In 2005, 509 Brunswick Avenue was sold for $550,000. A reasonable allocation of this amount is considered to be 75% to the building and 25% to the land.

User Account

All Pages