Premium Essay

Fargo Leasing

In: Business and Management

Submitted By leoliyu
Words 376
Pages 2
Fargo Leasing Limited (FLL) provides lease financing to companies and individuals for equipment other than automobiles. Leases on commercial signs make up 50% of total leases, computer and telecommunications equipment make up 30% of total leases and restaurant equipment makes up the remainder. FLL’s customers arrange to buy new equipment from equipment dealers, then contact FLL to arrange lease financing.

FLL was founded over thirty years ago by Laura and Al Smith. It is now run by Mr. and Mrs. Smith’s daughter, Betsy, who is the President of FLL. FLL owns a small building downtown, where the offices of the business are located. Unused office space is rented out to other commercial tenants.

Betsy was a classmate of yours at University of British Columbia, and you have kept loosely in touch over the years. This year, she moved the audit to your firm (a local firm with five partners), deciding that the firm her parents had hired many years ago did not really understand her business’ needs.

FLL has a small loan that is used to cover fluctuations in working capital. The company has two salespeople. Most loans are received from stores throughout the city, with who FLL has standing agreements. If customers require financing, they fill in an application at the store, which is faxed to FLL for approval- FLL with reply to the customer within two business days.

The company has been profitable for many years. There are no extraordinary items in the current year’s financial statements.

Selected financial information is as follows:
Current Assets $ 9,910,000
Long term Assets 46,500,000
Short term liabilities 30,700,000
Shareholder’s equity 25,710,000
Revenues 10,200,000
Expenses 5,600,000
Income after tax 4,300,000
Bonus 300,000

Required:

a) Which base would you use to calculate materiality? Why?
Normalized

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