Goal: To practice recording the disposal and purchase of PPE and to determine the effects of these transactions on the financial statements. (See Topic Guides A 22, 25, 42, 43). Information: On December 15 th, PPI's management was approached by a vendor offering them a chance purchase a specialized set of assets for only $737,000. The set includes two machines, one that retails for $278,000 and one that retails for $268,000, a custom conveyor belt that the vendor estimates has a retail value of $197,000, and a small storage facility with an estimated market value of $287,000. The vendor has offered PPI this deal because the company that ordered the units (one PPI's competitors) has declared bankruptcy. To make room for the new equipment, PPI has decided to sell off an old, cumbersome piece of equipment that will be replaced by the new machines. The old equipment was originally purchased for $209,000 and has been fully depreciated to its estimated salvage value of $24,035. PPI's sales department was able to sell the old machine for $21,850, a pretty good deal considering the change in production methods and the improvements in technology. Although the deal was completed on December 29 th, no journal entries have yet been recorded. Before you start, you should know that PPI's finance team has decided to round all percentages used for assigning values to assets to 3 decimal places. If the rounding doesn't add up to 100%, the adjustment should be made to the facility. PPI's management would like to know the effect of your adjustment on the following ratios: - Asset Turnover (Net Sales / average total assets) - Current Ratio - ROA Assignment: Calculations 1. Make the appropriate journal entries, if any, to account for the disposal and acquisition of PPE (including any necessary changes to income tax expense). 2. Make any necessary changes to the financial statements. Critical Thinking 3. Calculate each of the required ratios using the original values (before any changes) and the updated values (after your changes). 4. How do you think the stock analysts following PPI will react to this change in PPE? If you were the CEO having to explain the decision to analysts, what could you say to either aleviate their concerns or improve their outlook for the company? Goal: To practice recording the disposal and purchase of PPE and to determine the effects of these transactions on the financial statements. (See Topic Guides A 22, 25, 42, 43). Information: On December 15 th, PPI's management was approached by a vendor offering them a chance purchase a specialized set of assets for only $737,000. The set includes two machines, one that retails for $278,000 and one that retails for $268,000, a custom conveyor belt that the vendor estimates has a retail value of $197,000, and a small storage facility with an estimated market value of $287,000. The vendor has offered PPI this deal because the company that ordered the units (one PPI's competitors) has declared bankruptcy. To make room for the new equipment, PPI has decided to sell off an old, cumbersome piece of equipment that will be replaced by the new machines. The old equipment was originally purchased for $209,000 and has been fully depreciated to its estimated salvage value of $24,035. PPI's sales department was able to sell the old machine for $21,850, a pretty good deal considering the change in production methods and the improvements in technology. Although the deal was completed on December 29 th, no journal entries have yet been recorded. Before you start, you should know that PPI's finance team has decided to round all percentages used for assigning values to assets to 3 decimal places. If the rounding doesn't add up to 100%, the adjustment should be made to the facility. PPI's management would like to know the effect of your adjustment on the following ratios: - Asset Turnover (Net Sales / average total assets) - Current Ratio - ROA Assignment: Calculations 1. Make the appropriate journal entries, if any, to account for the disposal and acquisition of PPE (including any necessary changes to income tax expense). 2. Make any necessary changes to the financial statements. Critical Thinking 3. Calculate each of the required ratios using the original values (before any changes) and the updated values (after your changes). 4. How do you think the stock analysts following PPI will react to this change in PPE? If you were the CEO having to explain the decision to analysts, what could you say to either aleviate their concerns or improve their outlook for the company
