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Kieso 13th ed sol ch 21-1

# Kieso 13th ed sol ch 21-1 - EXERCISE 21-1(1520 minutes(a...

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EXERCISE 21-1 (15–20 minutes) (a) This is a capital lease to Adams 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: \$9,968 X 4.16986* = \$41,565 *Present value of an annuity due of 1 for 5 periods at 10%. (c) 1/1/10 Leased Machine Under Capital Leases ................................................... 41,565 Lease Liability .................................. 41,565 Lease Liability .......................................... 9,968 Cash ................................................... 9,968 12/31/10 Depreciation Expense ............................. 8,313 Accumulated Depreciation— Capital Leases .............................. 8,313 (\$41,565 ÷ 5 = \$8,313) Interest Expense ...................................... 3,160 Interest Payable ................................ 3,160 [(\$41,565 – \$9,968) X .10] 1/1/11 Lease Liability .......................................... 6,808 Interest Payable ....................................... 3,160 Cash ................................................... 9,968

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EXERCISE 21-2 (20–25 minutes) (a) To Brecker, 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 \$10,515 (see below) is 96% 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 \$250 for 50 months ........... \$ 9,800 Residual value of \$1,180 ...................................... 715 Present value of minimum lease payments ....... \$10,515 (c) Leased Property Under Capital Leases ..................... 10,515 Lease Liability ....................................................... 10,515 (d) Depreciation Expense ................................................. 186.70 Accumulated Depreciation—Capital Leases ................................................................ 186.70 [(\$10,515 – \$1,180) ÷ 50 months = \$186.70] (e) Lease Liability .............................................................. 144.85 Interest Expense (1% X \$10,515) ................................ 105.15 Cash ....................................................................... 250.00 EXERCISE 21-3 (20–30 minutes) Capitalized amount of the lease:
Yearly payment ........................................................... \$90,000.00 Executory costs .......................................................... (3,088.14 ) Minimum annual lease payment ................................ \$86,911.86

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EXERCISE 21-3 (Continued) Present value of minimum lease payments \$86,911.86 X 6.32825 = \$550,000.00 1/1/11 Leased Building Under Capital Leases ............................................. 550,000.00 Lease Liability ............................ 550,000.00 1/1/11 Executory Costs—Property Taxes ...... 3,088.14 Lease Liability .................................... 86,911.86 Cash ............................................. 90,000.00 12/31/11 Depreciation Expense ....................... 55,000.00 Accumulated Depreciation— Capital Leases ........................ 55,000.00 (\$550,000 ÷ 10) 12/31/11 Interest Expense (See Schedule 1) ............................ 55,570.58 Interest Payable .......................... 55,570.58 1/1/12 Executory Costs—Property Taxes ...... 3,088.14 Interest Payable ................................. 55,570.58 Lease Liability .................................... 31,341.28 Cash ............................................. 90,000.00 12/31/12 Depreciation Expense ....................... 55,000.00 Accumulated Depreciation— Capital Leases ........................ 55,000.00 12/31/12 Interest Expense ................................ 51,809.62 Interest Payable .......................... 51,809.62

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EXERCISE 21-3 (Continued) Schedule 1 KIMBERLY-CLARK CORP. Lease Amortization Schedule (Lessee) Date Annual Payment Less Executory Costs Interest (12%) on Liability Reduction of Lease Liability Lease Liability 1/1/11 \$550,000.00 1/1/11 \$86,911.86 \$ 0 \$86,911.86 463,088.14 1/1/12 86,911.86 55,570.58 31,341.28 431,746.86 1/1/13 86,911.86 51,809.62 35,102.24 396,644.62 EXERCISE 21-5 (15–20 minutes) (a) Because the lease term is longer than 75% of the economic life of the asset and the present value of the minimum lease
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Kieso 13th ed sol ch 21-1 - EXERCISE 21-1(1520 minutes(a...

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