How will Slappey Communications' investment in PP&E affect its financial statements? Original blog posting (September 29, 2014)

Slappey Communications invested nearly $770,000 in PP&E Spent about $100,000 to build a 1,000-square-foot “cloud storage” room, or a warehouse for network servers Spent about $670,000 on computers, servers, and other hardware Slappey borrowed about $385,000 and “….used its earnings to fund the rest”

Question 1 Assume that Slappey borrowed the funds for the cloud storage room by signing a long-term note. What impact, if any, would this investment have on Slappey’s assets, liabilities, and equity?

Question 2 Will the $100,000 investment in the cloud storage room impact Slappey’s 2014 income statement (again assume that Slappey borrowed the funds)? If so, what account(s) would be impacted?

Question 3 When the Wall Street Journal article states that Slappey “…used its earnings to fund the rest,” what does this statement mean? Where did the funding come from?

Question 4 Now assume that Slappey purchased computer hardware for $300,000 by using “…its earnings to fund the rest.” What impact will that transaction have on Slappey’s balance sheet?  On its income statement for 2014?  What accounts would be affected?

Question Recap Assume that Slappey borrowed the funds for the cloud storage room by signing a long-term note. What impact, if any, would this investment have on Slappey’s assets, liabilities, and equity? Will the $100,000 investment in the cloud storage room impact Slappey’s 2014 income statement (again assume that Slappey borrowed the funds)? If so, what account(s) would be impacted? When the Wall Street Journal article states that Slappey “…used its earnings to fund the rest,” what does this statement mean? Where did the funding come from? Now assume that Slappey purchased computer hardware for $300,000 by using “…its earnings to fund the rest.” What impact will that transaction have on Slappey’s balance sheet?  On its income statement for 2014?  What accounts would be affected?

For additional news stories to use in the accounting classroom, see the Accounting in the Headlines blog at http://accountingintheheadlines.com/ Related video resources can be found at http://www.youtube.com/user/accountingheadlines Questions or comments? Contact Dr. Wendy Tietz at wtietz@kent.edu