2. Accounting

# Question: use the following data to answer questions about northwood corp...

###### Question details

 Balance sheet data 20X7 20X6 Cash $1,290$1,100 Accounts receivable 1,250 1,200 Inventory 1,740 1,800 Property, plant, equipment 1,920 1,900 Accumulated depreciation (1,290) (1,250) Total assets $4,910$4,750 Accounts payable $970$850 Interest payable 150 100 Dividends payable 100 75 Long-term debt 530 785 Bank note 300 200 Common stock 1,030 950 Additional paid in capital 700 690 Retained earnings 1,130 1,100 Total liabilities and equity $4,910$4,750

 Income statement for the year 20X7 Sales $1,625 COGS 1,000 Depreciation 100 Interest expense 30 Gain on sale of old machine 100 Taxes 135 Net income$460

Notes:

• Dividends declared to shareholders were $10.New common shares were sold at par for$30.
• Fixed assets were sold for $300. Original cost of these assets was$800, and $600 of accumulated depreciation has been charged to their original cost. The firm borrowed$100 in a 10-year bank note – the proceeds of the loan were used to pay for new fixed assets.
• Depreciation for the year was $100 (accumulated depreciation up$40 and depreciation on sold assets $60). • At the beginning of 20X8,Northwood Corp. purchased new equipment to be used in its manufacturing plant. The cost of the equipment was$2,500 including $500 freight and$1,200 of taxes. In addition to the equipment cost, Northwood paid $100 to install the equipment and$750 to train its employees to use the equipment. Over the asset's life, Northwood paid $350 for repair and maintenance. At the end of five years, Northwood extended the life of the asset by rebuilding the equipment's motors at a cost of$850.
• In year 20X8,Northwood Corp. leases a machine for its own use for four years with annual payments of \$ 5,000. At the end of the lease, the machine is returned to the lessor, who will sell it for its scrap value. The appropriate interest rate is 4%. Northwood Corp. depreciates all assets on a straight-line basis. The lease payments are made at the end of the year.
1. Assuming US GAAP, calculate cash flow from operations using the indirect method. Please explain your answer.
2. Assuming US GAAP, calculate the CFI and CFF. Please explain your calculations.
3. What amounts related to the purchase of the new equipment in year 20X8 should be capitalized on Northwood's balance sheet and what amounts should be expensed in the period incurred? Please explain your results.
4. Calculate the immediate impact of the lease on Northwood Corp.’s balance sheet. Please explain which type of lease it is.