Chapter 21 - EXERCISE 21-1 (a) This is a capital lease to...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
EXERCISE 21-1 (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 asset’s 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
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
EXERCISE 21-2 (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 Depreciation—Capital 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. .................................................................... 200.00
Background image of page 2
EXERCISE 21-5 (a) Because the lease term is longer than 75% of the economic life of the asset and the present value of the minimum lease payments is more than 90% of the fair value of the asset, it is a capital lease to the lessee. Assuming collectibility of the rents is reasonably assured and no important uncertainties surround the amount of unreimbursable costs yet to be incurred by the lessor, the lease is a direct financing lease
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 16

Chapter 21 - EXERCISE 21-1 (a) This is a capital lease to...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online