Global Crossing is a large provider of telecommunications pi

Global Crossing is a large provider of telecommunications pipelines between countries. These pipelines carry internet traffic from one country to another around the world. In one of the footnotes, you see that Global Crossing notes that it purchased 10 years of capacity on the pipeline of NTT, a Japanese telecom provider for $500 million. The note states that this purchase price will be amortized over the life of the agreement.

You also recall reading in the Wall Street Journal last month an article (the article is not important, it\'s an assumption) announing that Global Vrossing had sold telecommunications capacity to NTT on a 10-year agreement. The CEO was quoted in the article as saying that this agreement would increase Global Crossing\'s revenue by $500 million for the year.

1. Show the impacts of these two transactions, as described above, on the Income Statement and Balance Sheet of Global Crossing. Assume in both transactions, the company involved in the sale received cash euqal to the amount of the transaction.

Solution

Particulars

Amount

Particulars

Amount

To Purchases ($500 million/10 years)

Net Profit c/d

$50 million

$500 million

By Sale of Telecommunications($500 million/10 years)

By Revenue from operations

$50 million

$500 million