Class9-solution

# Class9-solution - PROBLEM 21-7(a Leased Equipment Under...

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PROBLEM 21-7 (a) December 31, 2007 Leased Equipment Under Capital Leases. .. 129,195 Lease Liability. ......................................... 129,195 (To record leased asset and related obligations at the present value of 5 future annual payments of \$32,000 discounted at 12%, \$32,000 x 4.03735) December 31, 2007 Lease Liability. ............................................... 32,000 Cash. ......................................................... 32,000 (To record the first rental payment) (b) December 31, 2008 Depreciation Expense. .................................. 18,456 Accumulated Depreciation—Capital Leases. .................................................. 18,456 (To record depreciation of the leased asset based upon a cost to Brennan of \$129,195 and a life of 7 years) December 31, 2008 Interest Expense. ........................................... 11,663 Lease Liability. ............................................... 20,337 Cash. ......................................................... 32,000 (To record annual payment on lease obligation of which \$11,663 represents interest at 12% on the unpaid principal of \$97,195) 1

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PROBLEM 21-7 (Continued) BRENNAN STEEL COMPANY (Lessee) Lease Amortization Schedule (Annuity Due Basis) Date Interest (12%) on Liability Annual Lease Payment Reduction of Lease Liability Lease Liability 12/31/07 97,195 12/31/08 11,663 32,000 20,337 76,858 12/31/09 9,223 32,000 22,777 54,081 12/31/10 6,490 32,000 25,510 28,571 12/31/11 3,429 32,000 28,571 0 2
PROBLEM 21-7 (Continued) (c) December 31, 2009 Interest Expense. .............................................. 9,223 Lease Liability. .................................................. 22,777

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Class9-solution - PROBLEM 21-7(a Leased Equipment Under...

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