FSR Part $2.$ PPI Co$.$: Acquiring and Disposing of PPE

On December $15$th$,$ PPI's management was approached by a vendor offering them a chance purchase a$$specialized set of assets for only $$737,000.$ The set includes two machines, one that retails for$$$$278,000$ and one that retails for $$268,000,$ a custom conveyor belt that the vendor estimates has a$$retail value of $$197,000,$ and a small storage facility with an estimated market value of $$287,000.$ The$$vendor has offered PPI this deal because the company that ordered the units $($one PPI's competitors$)$has declared bankruptcy.

To make room for the new equipment, PPI has decided to sell off an old, cumbersome piece of$$equipment that will be replaced by the new machines. The old equipment was originally purchased for$$$$209,000$ and has been fully depreciated to its estimated salvage value of $$24,035.$ PPI's sales$$department was able to sell the old machine for $$21,850,$ a pretty good deal considering the change in$$production methods and the improvements in technology.

Although the deal was completed on December $29$th$,$ no journal entries have yet been recorded.$$Before you start, you should know that PPI's finance team has decided to round all percentages used$$for assigning values to assets to $3$ decimal places. If the rounding doesn't add up to $100\%,$ the$$adjustment should be made to the facility.

PPI$$s management would like to know the effect of your adjustment, if any, on the following ratios:

$1.$ Inventory Turnover

$2.$ Current Ratio

$3.$ ROA

Calculations

$1.$Make the appropriate journal entries, if any, to correct the reported values of inventory and COGS $($including any necessary changes to income tax expense$).$

$2.$ Make any necessary changes to the financial statements. $$

Critical Thinking:

$1.$ Calculate each of the required ratios using the original values $($before any changes$)$ and the$$updated values $($after your changes$).$

$2.$ How do you think the stock analysts following PPI will react to this change in PPE? If you$$were the CEO having to explain the decision to analysts, what could you say to either$$aleviate their concerns or improve their outlook for the company?

Help would be appreciated.