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Background: Balance Sheet Reporting Issues Judgment Crumple Car Rentals is planning to expand into the western part of the United States and needs to acquire
Background: Balance Sheet Reporting Issues
Judgment Crumple Car Rentals is planning to expand into the western part of the United States and needs to
acquire approximately additional automobiles for rental purposes. Because Crumple's cash reserves were
substantially depleted in replacing the bumpers on existing automobiles with new "fashion plate" bumpers, the
expansion funds must be acquired through other means. Crumple's management has identified two options:
Issue additional debt.
Create a wholly owned leasing subsidiary that would borrow the money with a guarantee for payment from
Crumple. The subsidiary would then lease the cars to the parent.
The acquisition price of the cars is approximately the same under both alternatives
Instructions to complete this assignment:
You have been asked to compare and contrast the two alternatives from the perspective of
The impact on Crumple's consolidated balance sheet.
Their legal ramifications.
The ability to control the maintenance, repair, and replacement of automobiles.
What other alternatives might be used in acquiring the required automobiles? Select your preferred alternative
and show why it is the better choice.
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