Asset Acquisitions Case 2: Equipment Purchase Case
Your analysis convinced Hoo’s Got Game? that LaserEdge Technology, Inc. offered the best
deal for purchasing the laser cutting machines. The new machines were going to be delivered
July 1, 20X2, and Hoo’s Got Game? was scheduled to receive the cash from the loan proceeds
from the Texas National Bank at that time so they could purchase the machines from LaserEdge.
To help her understand the effects of this non-cash acquisition, Rose Wescott has asked you to
prepare a repayment schedule over the life of the bank loan. Specifically, she wants to see an
amortization table that shows how each payment is split between paying the accumulated interest
and paying down the principal of the loan. She also wants to understand how the loan will affect
income for its second year of operations and beyond, as well as how the balance sheet would be
affected by the loan each year.
Further discussions with Rose helped you learn that Hoo’s Got Game? will depreciate the laser
cutting equipment to the nearest full month for book purposes, and the estimated useful life of
the machines is 10 years. Rose also informed you that the Company incurred transportation costs
of $575 and installation costs of $2,000 related to the laser cutting equipment purchase, and these
costs have already been paid in cash. With this information, you are ready to begin preparing the
repayment schedule and an analysis of the impact of the loan and equipment on income.
Case deliverable:
Using the attached tables,
 Prepare the amortization table for the bank loan that was used to finance the purchase of
the laser cutting machines.
 Decide how the transportation and installation costs should be treated and prepare a
schedule showing the Income Statement effects of the machines and note payable (i.e.,
interest expense from the loan and the depreciation expense from the laser cutting
machines).
 Show the Balance Sheet effects of the note payable over the life of the loan (i.e., interest
payable, current portion of long-term debt and non-current portion of long-term debt) for
December 31st of each year the loan has an outstanding balance.
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Texas National Bank
Hoo’s Got Game?, Inc. Amortization Schedule
Loan Number:
Date Loan Made:
Secured by:
Stated Interest Rate:
Years
Total Loan Amount:
54757
7/01/2X02
Machines
9%
6
$95,000
Loan amortization schedule:
Repayme Payment
nt period
date
7/1/2X03
1
2
7/1/2X04
3
7/1/2X05
4
7/1/2X06
5
7/1/2X07
6
7/1/2X08
Balance at
beginning
of period
$95,000
Amount paid
Interest Paid
Principal
Paid
Balance at
end of period
Total
payments:
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Income Statement effects of Machines and Note Payable (each fiscal year ends 12/31)
Fiscal Year
Depreciation
Expense
Interest Expense
Total
Current portion of
Note Payable
Noncurrent portion
of Note Payable
2X02
2X03
2X04
2X05
2X06
2X07
2X08
2X09
2X10
2X11
2X12
Totals
Balance Sheet effects of Note Payable
At Fiscal
Year-end
Interest Payable
2X02
2X03
2X04
2X05
2X06
2X07
2X08
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Solution – Analysis of Bids (In-Class exercise)
Hoo's Got Game? Laser Cutting Machine Purchase Options
Lasers!, Inc.
Machine Price
Total Price of 2 Machines
Financing
Years
Stated Interest Rate
Value at end of financing
Annual Payment
Present Value of cash flows at the
market interest rate, i = 9%
LaserEdge
Technology, Inc.
62,500
125,000
Lasers!, Inc.
5
0.00%
($25,000.00)
47,500
95,000
Bank
6
9.00%
($21,177.38)
($97,241.28)
($95,000.00)
LaserEdge Technology, Inc. has the best offer for Hoo's Got Game?.
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