Question one
The project financing through arrangement is where a company with adequate asset and liability structure makes an obligation to secure the parent company if it goes bankrupt. That is it is a legal entity usually a limited partnership created to meet specific objectives. Moreover, such projects are used to isolate companies from financial risks.
Question two
Take or pay are written contracts where one party is obligated to either deliver the goods or pay some specific amounts. Therefore, it is used in certain contracts as a means of ensuring that transactions occur. In this case, Matt Ryan entered into a contract with ACC where ACC was to construct a new plant on Ryan's land while Ryan was to sign a 20-year purchase agreement.
Question three and four
Ryan Corporation should not record the new plant constructed by ACC as an asset because the plant is a special-purpose entity that is owned by both corporations. Therefore, there are some jurisdictions of ownership by the parties in specific percentages. In this case, Ryan Corporation will own the plant after twenty years. Therefore, Ryan should record assets that relate to future commitments since SPE is not owned by the sponsoring firm (ACC). Moreover, Ryan Corporation will transfer the assets to the special-purpose entity (SPE) to finance bigger projects to achieve some objectives without putting the whole company at risk.Question five
The off-balance sheet financing is where large capital expenditure is kept off the balance sheet of the company to keep low debt to equity and leverage ratios. It is when the inclusion of a large expenditure would break the undesirable debt covenants (Wright, 2017). Examples of the off-balance sheet financing are the joint venture, and operating leases, where the assets are kept on the balance sheet lessor. The lessee such as Ryan Corporation will only report the required rental expenses for the use of the assets.
References
Wright, T. (2017). What Is Off Balance Sheet Financing? Smallbusiness.chron.com. Retrieved 5 January 2017, from http://smallbusiness.chron.com/off-balance-sheet-financing-59576.html
