What effect will it have on fresh soda debt to equity

Assignment Help Financial Accounting

Reference no: EM133337144

Case: Fresh Soda signed a lease agreement with Power Corp to create custom vending machines that sell only Fresh Soda. The machines have a useful life of 10 years.

Without this lease, the vending machines would have cost $10,5000,000 up front. With the lease, Fresh Soda will make an annual payment of $1,857,717.61 for six years.

Its first payment will be on the first of July, 2023.

When the lease is done, Fresh Soda may buy the equipment for a cost equal to the fair market value.

The lease has an interest rate implicit of 6%. That is also the same as the marginal borrowing rates.

No journal entries have been because no payment have been made yet.

Question:

Discuss the accounting issue above using the following guideline:

1. Is this a matter of recognition, disclosure, measurement or presentation?

2. What are the implications of the matter described in Question 1? What effect will it have on Fresh Soda's debt to equity and EPS?

3. What are the alternatives (if any) to the matter described in Question 1?

4. What is the best course of action for Fresh Soda moving forward?

Reference no: EM133337144

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