Sample Essay: See Paper Instructions

A.

The propriety of recording machinery as part of the corporation’s assets when it was purchased at its cash market value not yet its full amount is more like a lease than an outright purchase since the full market price plus the gain of the seller to the corporation has not yet been settled. That is why it is more reasonable to treat the event as a lease of capital assets since the corporation has yet to pay fully in cash, (Capital Assets, 2007). The proprietary right of the company when it has purchased the equipment at this price one half to the total of they are owing the equipment company entitles them to the right to own the equipment until fully paid as long as they don’t fail to pay the monthly installments with the stated rates that was stipulated in the contracts in order for them to be able to fully take full control and ownership of the equipment and be at their disposal without anymore obligations to deal with in case of failure to pay.

If the corporation is to pay for the asset in its full cash price, then it should be treated more like an outright capital expenditure rather than a leased equipment like the previous example discussed. If the equipment supplier has agreed to give the equipment to the company as long as they pay in full in and in cash, then they have no more things to worry about because it will be treated like a fully completed sale already. The only exception to this would be the installment payment of the company for the equipment until such time that they can repay the remaining $ 25,000 that was left unpaid for at the start.

Lastly, if the corporation has fully paid for the equipment plus the mark up placed by the seller to its selling price, then the company can treat the expense as an outright purchase instead of an installment capital expenditure like the first example described. This last example would also enable the company to be able to cut off all manners of ties to the seller since they have no more obligations to settle between them. This type of payment would undoubtedly erase all forms of obligations that the company would have been otherwise been obligated for.

B.

The balance can be treated as a normal liability since the item indeed behaves just like the rest of the normal balance sheet items. The item needs to be treated as such because it requires the company to still continue paying the item as if it is not creating some form of economic gain for the company as it is being used currently. It behaves like a liability since it is also draining income from the balance sheet of the company and it also demands that it be paid its full price in the until its contract expires.

On the other hand, those who are proposing that it should be treated as a treasury stock has some good points because of the fact that the company did buy some of the stock that it sold to the open market,( Investopedia, “What is treasury Stock”, 2007). This automatically results in an improvement on the value of the stock that the rest of the shareholder holds because they now have fewer shares to split the dividends with and fewer owners to share the dividends with. The only thing that the shareholders of the company have to watch out for is the ultimate intention why the buyback of the shares was done in the first place. If it was indeed done because the company was just intending to make its payment schedule a bit lighter and make use of the capital expenditure for further income generating pursuits then they can consider as a good buyback. The buyback that was done however purely to manage and manipulate the financial ratios to make them look good in the balance sheet but not in the fundamentals.

Bibliography:

Principles of accounting, (2007)

http://www.principles-of-accounting.com/g.php?C=4801969&D=898970&domain=principles-of-accounting.com&K=principles+of+accounting&V=5168&K=principles+of+accounting

Investopedia, “What is treasury Stock”, (2007)

http://www.investopedia.com/ask/answers/03/111303.asp

Capital Assets, (2007)

http://www.ofm.wa.gov/policysc/85.60sc30.htm