# ch21 - SOLUTIONS TO B EXERCISES E21-1B(15–20 minutes(a...

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Unformatted text preview: SOLUTIONS TO B EXERCISES E21-1B (15–20 minutes) (a) This is a capital lease to Manor since the lease term (6 years) is greater than 75% of the economic life (6 years) of the leased asset. The lease term is 100% (6 ÷ 6) of the asset’s economic life. (b) Computation of present value of minimum lease payments: \$54,291 X 4.6048* = \$250,000 *Present value of an annuity due of 1 for 6 periods at 12% (c) 1/1/07 Leased Machine Under Capital Leases................................................... 250,000 Lease Liability.................................. 250,000 Lease Liability.......................................... 54,291 Cash................................................... 54,291 12/31/07 Depreciation Expense............................. 41,667 Accumulated Depreciation— Capital Leases.............................. 41,667 (\$250,000 ÷ 6 = \$41,667) Interest Expense...................................... 23,485 Interest Payable................................ 23,485 [(\$250,000 – \$54,291) X 0.12] 1/1/08 Lease Liability.......................................... 30,806 Interest Payable....................................... 23,485 Cash................................................... 54,291 21-1 E21-2B (20–25 minutes) (a) To Jupiter, 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 % (10/12) 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 \$102,168 (see below) is 93% 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 \$16,000 for 10 years......................... \$ 98,313 Residual value of \$10,000................................................... 3,855 Present value of minimum lease payments..................... \$102,168 (c) Leased Property Under Capital Leases.................... 102,168 Lease Liability....................................................... 102,168 (d) Depreciation Expense................................................. 9,831 Accumulated Depreciation—Capital Leases............................................................... 9,831 [(\$102,168 – \$3,855) ÷ 10 years = \$9,831] (e) Lease Liability.............................................................. 5,783 Interest Expense (10% X \$102,168)........................... 10,217 Cash....................................................................... 16,000 21-2 E21-3B (20–30 minutes) Capitalized amount of the lease: Yearly payment \$81,680.00 Executory costs (1,563.19 ) Minimum annual lease payment \$80,116.81 Present value of minimum lease payments: \$80,116.81 X 4.9927 = \$400,000.00 1/1/07 Leased Equipment Under Capital Leases..............................................Leases....
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ch21 - SOLUTIONS TO B EXERCISES E21-1B(15–20 minutes(a...

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