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Question: you are a staff accountant at a confectionary company philly...

Question details

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 $9,190 each 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 advantage of such discounts.
  • The copiers have an estimated useful life of 5 years and a projected salvage value of $900 each. PCI depreciates similar assets using the double declining balance and nearest month methods.
  • Based on its research, PCI’s tech department estimates that repairs and maintenance on the new 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)

  1. $ 50
  2. $200
  3. $300
  4. $500
  5. $500
  6. $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:

  1. A table summarizing the balance sheet and income statement impact in each of the five years
  2. Using Hershey’s 3rd 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 on Assets be with and without this transaction?
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