Chapter 21 Solutions - CHAPTER 21 Accounting for Leases...

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Unformatted text preview: CHAPTER 21 Accounting for Leases CHAPTER 21 Accounting for Leases SOLUTIONS TO EXERCISES EXERCISE 21-1 (1520 minutes) (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 83 1 / 3 % (5 6) of the assets 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%. (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 EXERCISE 21-2 (2025 minutes) (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 83 1 / 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 (d) Depreciation Expense................................................. 147.50 Accumulated DepreciationCapital 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..........................................................................
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This homework help was uploaded on 03/19/2008 for the course ACC 326 taught by Professor Atiase during the Spring '08 term at University of Texas at Austin.

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Chapter 21 Solutions - CHAPTER 21 Accounting for Leases...

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