You are a staff accountant at a confectionary company, PhillyChocolates International (“the Company” or PCI). The lease on thecurrent multifunction copiers the Company has in its headquartersis almost up. PCI has decided to replace the current copiers withCanon imageRunnerAdvanceC55501 copiers. The CFO has asked you toinvestigate the impact to the financial statements over the nextfive years if PCI buys the copiers for cash. The following is theinformation you have been able to gather so far.
- The copiers cost $9,190 each and PCI will need 15 copiers.
- The local dealer is willing to offer credit terms of 2/15, net45 on the purchase. PCI usually takes advantage of suchdiscounts.
- The copiers have an estimated useful life of 5 years and aprojected salvage value of $900 each. PCI depreciates similarassets using the double declining balance and nearest monthmethods.
- Based on its research, PCI’s tech department estimates thatrepairs and maintenance on the new copiers will be minimal thefirst two years while they are under warranty and increase steadilyover the remaining useful lives. They have provided you with thefollowing estimates.
R&M Cost
Year (per copier)
- $ 50
- $200
- $300
- $500
- $500
- $500
Assignment
Prepare a set of schedules for the CFO summarizing the impact tothe balance sheet and income statement over the next five years ofbuying 15 Canon imageRunnerAdvanceC55501 copiers as well asprojected costs as outlined above. Note assume the Collegepurchases the copiers on October 31, 2018 and pays for repairs andmaintenance with cash. To support your analysis you should includethe following supporting schedules:
- A table summarizing the balance sheet and income statementimpact in each of the five years
- Using Hershey’s 3rd Quarter 2018 financialstatements, project the year-end 2018 balances with and withoutthis transaction. What would Asset Turnover, Profit Margin onSales, and Return on Assets be with and without thistransaction?
