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Graphical Presentation: Keystone

Part I

Assume the following facts:

1. Keystone is defunct, has zero assets, and has two liabilities remaining on its balance

sheet:

a. Unsecured pension liability = $5 million

b. Secured loan to an owner named Mr. Javlin = $10,000,000

2. Assume that Keystone has two owners: Mr. Javlin (67%) and Mr. Linton (33%)

3. Assume that during the period 20×2 through 20×8, companies owned by Mr. Javlin

were paid $32,000,000 by Keystone. Company names included Sword Ridge, Sword

River, Rock River, Rock Rider, Cobra Coal, Rock Walker, Arctic Resources, Cinnamon

Resources.

4. Assume that during the period 20×2 through 20×8, companies owned by Mr. Linton

were paid $16,000,000 by Keystone. Company names included Atlantic Supply,

Keystone Land & Coal, First Management, Sundance.

5. After one year of litigation discovery, no evidence was provided by Keystone, Javlin, or

Linton to substantiate the business purposes for these payments by Keystone.

6. Neither Mr. Javlin nor Mr. Linton drew a salary during the period 20×2–20×8.

Assignment: Graphically present this information on one sheet of paper.

Part II

Assume the following additional facts:

1. During the period 20 × 2 − 20 × 8, Keystone had capital expenditures for investments

in new property plant and equipment and equipment rentals as follows:

Cap Ex Rental Expense

a. 20×2 = $1.6 million $1.2 million

b. 20×3 = $500,000 $1.05 million

c. 20×4 = $600,000 $800,000

d. 20×5 = $175,000 $900,000

e. 20×6 = $25,000 $800,000

f. 20×7 = $50,000 $750,000

g. 20×8 = $0 $250,000

Assignment: Graphically present this information on one sheet of paper. What conclusions

can you draw?