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ACT_3392_Chp_21_Homework_Solutions

# ACT_3392_Chp_21_Homework_Solutions - Intermediate...

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Intermediate Accounting II Amanda N. Paul, CPA, MBA Troy University

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Chapter 21 EXERCISE 21-1 (a)This is a capital lease to Burke since the lease term (5 years) is greater than 75% of the economic life (6 years) of the leased asset. The lease term is 831/3% (5 ÷ 6) of the asset’s economic life. (b)Computation of present value of minimum lease payments: \$8,668 X 4.16986* = \$36,144 *Present value of an annuity due of 1 for 5 periods at 10%.
EXERCISE 21-1 continued (c) 1/1/07 Leased Machine Under Capital Leases 36,144 Lease Liability 36,144 Lease Liability 8,668 Cash 8,668 12/31/07 Depreciation Expense 7,229 Accumulated Depreciation— Capital Leases 7,229 (\$36,144 ÷ 5 = \$7,229) Interest Expense 2,748 Interest Payable 2,748 [(\$36,144 – \$8,668) X .10] 1/1/08 Lease Liability 5,920 Interest Payable 2,748 Cash 8,668

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EXERCISE 21-2 (a) To Delaney, the lessee, this lease is a capital lease because the terms satisfy the following criteria: 1. The lease term is greater than 75% of the economic life of the leased asset; that is, the lease term is 831/3 % (50/60) of the economic life. 2. The present value of the minimum lease payments is greater than 90% of the fair value of the leased asset; that is, the present value of \$8,555 (see below) is 98% of the fair value of the leased asset: (b) The minimum lease payments in the case of a guaranteed residual value by the lessee include the guaranteed residual value. The present value therefore is: Monthly payment of \$200 for 50 months \$7,840 Residual value of \$1,180 715 Present value of minimum lease payments \$8,555 (c) Leased Property Under Capital Leases 8,555 Lease Liability 8,555
EXERCISE 21-2 continued (d) Depreciation Expense 147.50 Accumulated Depreciation—Capital Leases 147.50 [(\$8,555 – \$1,180) ÷ 50 months = \$147.50] (e) Lease Liability 114.45 Interest Expense (1% X \$8,555) 85.55 Cash 200.00

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EXERCISE 21-3 Capitalized amount of the lease:
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