Question

You are a staff accountant at a confectionary company, Philly Chocolates International the Company" or PCI). The lease on the current multifunction copiers the Company has in its headquarters is almost up PCI has decided to replace the current copiers with Canon imageRunnerAdvanceC55501 copiers. The CFO has asked you to investigate the impact to the financial statements over the next five years if PCI buys the copiers for cash. The following is the information you have been able to gather so far. The copiers cost S9.190 cach and PCI will need 15 copiers. .The local dealer is willing to offer credit terms of 2/15, net 45 on the purchase. PCI usually takes .The copiers have an estimated useful life of5 ycars and a projected salvage value of S900 each .Based on its research, PCI's tech department estimates that repairs and maintenance on the new advantage of such discounts. PCI depreciates similar assets using the double declining balance and nearest month methods copiers will be minimal the first two years while they are under warranty and increase steadily over the remaining useful lives. They have provided you with the following estimates. R&M Cost Year (per copier) 2018 S 50 2019$200 2020 $300 2021 $500 2022 $500 2023 $500 Assignment Prepare a set of schedules for the CFO summarizing the impact to the balance sheet and income statement over the next five years of buying 15 Canon imageRunnerAdvanceC55501 copiers as well as projected costs as outlined above. Note assume the College purchases the copiers on October 31, 2018 and pays for repairs and maintenance with cash. To support your analysis you should include the following supporting schedules: a. A table calculating depreciation expense over the life of the copiers b. A table calculating repairs and maintenance expense over the next five years c. A schedule of the related journal entries in cach of the five years d. A table summarizing the balance sheet and income statement impact in each of the five years e. Using Hershey's3d Quarter 2018 financial statements, project the year-end 2018 balances with and without this transaction. What would Asset Turnover, Profit Margin on Sales, and Return orn Assets be with and without this transaction?

I need help with a-e but please focus on d and e.

Thank you!

Answer 1

Answer:

Credit of 2/15, net 45 means the entity is allowed 2% discount if payment is made within 15 days, else entire payment be made within 45 days. As PCI takes advantage of  such discounts, the total amount spent on purchase of 15 copiers is ($9190*15*0.98) i.e. $135,093.

Now, Annual Depreciation per copier = (Cost - residual value)/useful life

= [(9190*0.98) - 900 ] / 5

= 1621.24

Annual Depreciation rate as per Double Declining Method = (1621.24/9006.2) * 2

= 36%

(a) Schedule with annual depreciation

Year-End	Asset Value	Depreciation(36%)	Remaining Value ( Asset Value less accumulated depreciation )
1	135093	48633.48	86459.52
2	135093	48633.48	37826.04
3	135093	24326.04	13500
4	-	-	13500
5	-	-	13500

(b)

Annual Repair and Maintainance

Year	R&M ($) per copier	No. of Copiers	Total Expense
2018	50	15	750
2019	20	15	300
2020	300	15	4500
2021	500	15	7500
2022	500	15	7500
2023	500	15	7500
			28050

(c) Journal Entries

2018	Copiers A/c               Dr	135093
	To Bank	135093
	(Being 15 Copiers Purchased)
	Repairs & Maintenance A/c      Dr	750
	To Cash A/C	750
	(Being annual R&M expense met)
	Depreciation A/c      Dr	48633.48
	To Accumulated Depreciation	48633.48
	(Being depreciation charged.)
2019	Repairs & Maintenance A/c Dr	300
	To Cash A /c	300
	(Being annual R&M expense met)
	Depreciation A/c Dr	48633.48
	To Accumulated Depreciation	48633.48
	(Being depreciation charged.)
2020	Repairs & Maintenance A/c Dr	4500
	To Cash A/c	4500
	(Being annual R&M expense met)
	Depreciation A/c Dr	24326.04
	To Accumulated Depreciation	24326.04
2021	Repairs & Maintenance A/c Dr	7500
	To Cash A/c	7500
	(Being annual R&M expense met)
2022	Repairs & Maintenance A/c      Dr	7500
	To Cash A/c	7500
	(Being annual R&M expense met)
2023	Repairs & Maintenance A/c      Dr	7500
	To Cash A/c	7500
	(Being annual R&M expense met)