This preview shows pages 1–6. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full DocumentThis preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
Unformatted text preview: CHAPTER 21 Accounting for Leases CHAPTER 21 Accounting for Leases SOLUTIONS TO EXERCISES EXERCISE 211 (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 212 (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..........................................................................
View
Full
Document
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.
 Spring '08
 Atiase
 Accounting

Click to edit the document details