This assignment is based on the spreadsheet prepared in (1) of the cumulative spreadsheet assignment for Chapter 13. Review that assignment for a summary of the assumptions made in preparing a forecasted balance sheet, income statement, and statement of cash flows for 2012 for Skywalker Company. This assignment involves revisiting assumptions (q) and (u) in the Chapter 13 assignment.

Skywalker would like to know how its forecasted financial statements would look if it decided to lease all new property, plant, and equipment under operating leases. Before 2012, all of Skywalker’s property, plant, and equipment purchases had been 100% financed using long-term debt. This same assumption underlies the forecast prepared in (1) of the Chapter 13 assignment.

1. Using the same instructions given in (1) of the Chapter 13 spreadsheet assignment, forecast the following values for 2012:

Forecasted balance sheet for 2012:

(a) Property, plant, and equipment
(b) Accumulated depreciation
(c) Long-term debt

Forecasted income statement for 2012:

(d) Depreciation and amortization expense
(e) Other operating expenses
(f) Interest expense
(g) Income tax expense
(h) Net income

Forecasted statement of cash flows for 2012:

(i) Cash from operating activities
(j) Cash from investing activities
(k) Cash from financing activities

Financial ratios for 2012:

(l) Debt ratio (Total liabilities/Total assets)
(m) Asset turnover (Sales/Total assets)

2. Repeat (1), but now assume that all new property, plant, and equipment expected to be acquired during 2012 will be acquired under an operating lease arrangement. Assume that the annual operating lease payment for property, plant, and equipment is 15% of the purchase price of the asset and that the new property, plant, and equipment that Skywalker will lease in 2012 will not all be leased at the start of the year but will be added evenly throughout the year. Mathematically, this is the same as assuming that new assets leased during the year are leased, on average, for half the year. (Note: Operating lease payments are classified in the income statement as “Other operating expenses.”) Under this leasing arrangement, the forecasted balance in long-term debt at the end of 2012 should be the amount forecasted previously (assuming an 80% debt ratio), less the amount of recognized long-term debt that can be avoided through the leasing arrangement.
3. Comment on the differences between the numbers in (1) and (2).