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Homework Solutions - Ch 15

# Homework Solutions - Ch 15 - Exercise 15-1(a Nath-Langstrom...

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Exercise 15-1 (a) Nath-Langstrom Services, Inc. (Lessee) June 30, 2006 Rent expense .................................. 10,000 Cash ........................................... 10,000 December 31, 2006 Rent expense .................................. 10,000 Cash ........................................... 10,000 (b) ComputerWorld Corporation (Lessor) June 30, 2006 Cash ............................................... 10,000 Rent revenue .............................. 10,000 December 31, 2006 Cash ............................................... 10,000 Rent revenue .............................. 10,000 Depreciation expense (\$90,000 ÷ 6 years) 15,000 Accumulated depreciation ......... 15,000

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Exercise 15-8 1. Calculation of the present value of lease payments \$562,907 x 5.32948 Φ = \$3,000,000 (rounded) Φ present value of an annuity due of \$1: n=6, i=5% 2. Liability at December 31, 2006 Initial balance, June 30, 2006 .................................. \$3,000,000 June 30, 2006 reduction ........................................... (562,907)* Dec. 31, 2006 reduction ........................................... (441,052) ** December 31, 2006 net liability .............................. \$1,996,041 Asset at December 31, 2006 Initial balance, June 30, 2006 .................................. \$3,000,000 Accumulated depreciation at Dec. 31, 2006 ............ (500,000) ** December 31, 2006 ............................................ \$2,500,000 3. Expenses for year ended December 31, 2006 June 30, 2006 interest expense ................................ \$ 0* Dec. 31, 2006 interest expense ................................ 121,855 ** Interest expense for 2006 ......................................... \$121,855 Depreciation expense for 2006 ................................ 500,000 Total expenses ....................................................... \$621,855 Calculations: June 30, 2006* Leased equipment (calculated in req. 1) ........................... 3,000,000 Lease payable (calculated in req. 1) .............................. 3,000,000 Lease payable ................................................................. 562,907 Cash (rental payment) ................................................... 562,907 December 31, 2006** Interest expense (5% x [\$3 million – 562,907]) ................ 121,855 Lease payable (difference) ............................................... 441,052 Cash (rental payment) ................................................... 562,907 Depreciation expense (\$3 million / 3 years x ½ year) .... 500,000 Accumulated depreciation .......................................... 500,000

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Exercise 15-9 1. Receivable at December 31, 2006 Receivable – Unearned = Net Rec. Interest Initial balance, June 30, 2006 ............ \$3,377,442 377,442 \$3,000,000 June 30, 2006 reduction ..................... (562,907)* 0 (562,907) Dec. 31, 2006 reduction ..................... (562,907) ** (121,855 ) (441,052) December 31, 2006 net receivable .... \$2,251,628 255,587 \$1,996,041 The receivable is reported as: Lease receivable ................................. \$2,251,628 Less: unearned interest revenue ......... (255,587) \$1,996,041 The receivable replaces the \$3,000,000 machine on the balance sheet.
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