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worn components would cost $82,000 with associated labor costs of $210,000 forinstallation. The overhaul is estimated to extend the useful life of the equipment another
four years. (The present equipment’s original useful life was eight years, starting
January 1, 2006.) The costs will be financed at the end of 2013 through a one-year loanfor $350,000 at 10%, and the balance will be charged on account.
Instructions
(a) Access File 10a on the website, Excel File. For each of the four options
presented, prepare journal entry(ies) in proper form in the proposed adjustmentscolumns on the trial balance. This will require four separate spreadsheet files forthe four options. For any loans created, record the current portion to the accountspayable line on the trial balance, and change the description to accounts payableand short-term debt (both on the trial balance and on the balance sheet). Recordany long-term portion to long-term liabilities. Write a brief memo on how eachoption affects the financial statements. Include your journal entry(ies) in the bodyof your memo for each option. Discuss the strengths and weaknesses of eachoption.
(b) Since you are now in the process of analyzing the quantitative effects ofthis decision, you decide to also consider whether the acquisition of any newequipment will cause any employees to lose jobs. Also you wonder if there areother non-financial and/or ethical considerations you should include in youranalysis. Write a memo describing other qualitative or subjective issues that you
think Conner and Martin should consider in their analysis.
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