Direct Cash flow and journal entry

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Recall that Bill sold the old equipment at his other location to a friend for $7,000 .

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He now has to replace the equipment, but is undecided about whether he should buy or lease the equipment. Bill could get the same bundle purchase price as he did for the new location if he buys it, but he can lease the equipment under a 3-year lease agreement. The annual rental payments are a lump sum payment of $12,000 for the first year and $10,000 for the next 2 years at the end of which he would have the option to purchase the equipment for $6000.

Required

1. Prepare a Statement of Cash Flow (using the Direct methods) for 2018

2.Advise Bill on the advantages and disadvantages of replacing his old equipment by leasing it versus buying it and its effect on cash flows. Assume a market interest rate of 4%. You can access the present/future value tables on line for your calculations.

3.Show the journal entries that would have to be recorded for the lease for years 1, 2,and 3 and eventual purchase at the end of year 3 under the assumption it is a) an operating lease and b) a capital lease.

I have already do the indirect methods for cash flow. you need base on the File1 (that I gave u ,balance sheet and Income statement )to Complete the Cash Flow Using the Direct method in file2. And do the journal entries. This is Grading sheet.

Area

%

Statement of Cash Flows, Indirect-correctly formatted

with correct descriptions and amounts

30

Statement of Cash Flows-correctly formatted with correct account descriptions and amounts

30

Lease vs Buy Analysis-Recommendation with data to support it

20

Entries to record lease as operating and capital lease

20

Overall Grade

100

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