Excel Problem Set 3, Leases, Spring 2008

Excel Problem Set 3, Leases, Spring 2008 - Excel Problem...

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Excel Problem Set 3, Leases. Accy 303, Fall 2007 Example of operating and capital leases Asset cost/present value $18,737,653 Note: annual lease payments on the first day of each year. Term of lease in years: 12 Note: NPV equals the first lease payment, undiscounted, plus the present Annual payment: $2,500,000 value of lease payments in years 2-12. Implied interest rate: 10.00% lease costs: Payment, Obligation, Interest Obligation, Depreciation Asset Interest exp Operating Year 1-Jan 1-Jan expense 31-Dec expense book value + Depreciation lease costs $18,737,653 $18,737,653 1 $2,500,000 $16,237,653 $1,623,765 $17,861,418 $1,561,471 $17,176,181 $3,185,236 $2,500,000 2 $2,500,000 $15,361,418 $1,536,142 $16,897,560 $1,561,471 $15,614,710 $3,097,613 $2,500,000 3 $2,500,000 $14,397,560 $1,439,756 $15,837,315 $1,561,471 $14,053,239 $3,001,227 $2,500,000 4 $2,500,000 $13,337,315 $1,333,732 $14,671,047 $1,561,471 $12,491,768 $2,895,203 $2,500,000 5 $2,500,000 $12,171,047 $1,217,105 $13,388,152 $1,561,471 $10,930,297 $2,778,576 $2,500,000 6 $2,500,000 $10,888,152 $1,088,815 $11,976,967 $1,561,471 $9,368,826 $2,650,286 $2,500,000 7 $2,500,000 $9,476,967 $947,697 $10,424,664 $1,561,471 $7,807,355 $2,509,168 $2,500,000 8 $2,500,000 $7,924,664 $792,466 $8,717,130 $1,561,471 $6,245,884 $2,353,937 $2,500,000 9 $2,500,000 $6,217,130 $621,713 $6,838,843 $1,561,471 $4,684,413 $2,183,184 $2,500,000 10 $2,500,000 $4,338,843 $433,884 $4,772,727 $1,561,471 $3,122,942 $1,995,355 $2,500,000 11 $2,500,000 $2,272,727 $227,273 $2,500,000 $1,561,471 $1,561,471 $1,788,744 $2,500,000 12 $2,500,000 $0 $0 $0 $1,561,471 $0 $1,561,471 $2,500,000 $11,262,347 $18,737,653 $30,000,000 $30,000,000 Leasee Lessor At inception Asset $18,737,653 Lease asset $18,737,653 Cash $18,737,653 Lease liab $18,737,653 Lease receivable $18,737,653 Beginning of year 1 Asset $18,737,653 Lease liability $2,500,000 Cash $2,500,000 Beginning of year 1 Cash $2,500,000 End of year 1 Lease receivable $2,500,000 Interest expense $1,623,765 Interest payable $1,623,765 End of year 1 Interest Receivable $1,623,765 Depreciation exp $1,561,471 Interest income $1,623,765 Accumulated dep $1,561,471 Beginning of year 2 Beginning of year 2 Cash $2,500,000 Lease liability $876,235 Interest Receivable $1,623,765 Interest payable $1,623,765 Lease receivable $876,235 Cash $2,500,000 Note: At lease inception, the liability immediately decreased from $18,737,653 to $16,237,653 with the first $2,500,000 payment. During year 1 the lease liability increased by the $1,623,765 interest expense, which was not paid. On January 1, year 2, the lessee paid an additional $2,500,000. The net of the $1,623,765 increase to lease liability and the $2,500,000 decrease because of the annual lease payment, is a decrease to the lease liabiltiy of $876,235. With a short-term lease, the lessee debits lease expense and credits cash for each lease payment.
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This note was uploaded on 04/07/2008 for the course ACCY 303 taught by Professor Sandretto during the Spring '08 term at University of Illinois at Urbana–Champaign.

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Excel Problem Set 3, Leases, Spring 2008 - Excel Problem...

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