Ch 21 HWp - Chapter 21 Homework E 21-1 (lessee entries,...

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Chapter 21 Homework E 21-1 (lessee entries, capital lease with unguar residual, executory costs) Jan 1, 2011 Adams signs 5 yr noncancelable for machine. Equal rental payment of $9,968 beginning Jan 1, 2011 Est economic life 6 yrs, unguar residual $5,000 Depr SL Lease reverts to owner at end Lessee's incremental rate is 10%. Lessor's is not known Yearly rental includes no executory costs a Capital lease - term is greater than 75% (5/6 = 83%) b Capitalized amount of the lease PMT = 9,968 BGN, N = 5, I = 10%, FV = 0 (unguar), PV = 41,565 Prepare JE for 2011 and 2012 1/1/11 Leased Machine 41,565 Lease Liability 41,565 Lease Liability 9,968 Cash 9,968 12/31/11 Depreciation Expense 8,313 Accum Depr Capital Leases 8,313 (41565 / 5 ) Interest Expense 3,160 Interest Payable 3,160 1/1/12 Lease Liability 6,808 Interest Payable 3,160 Cash 9,968 12/31/12 Depreciation Expense 8,313 Accum Depr 8,313 Interest Expense 2,479 Interest Payable 2,479 Lease Interest Reduction Lease Date Payments at 10% of Liab Liability 1/1/11 41,565 1/1/11 9,968 9,968 31,597
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1/1/12 9,968 3,160 6,808 24,789 1/1/13 9,968 2,479 7,489 17,300
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E 21-2 (lessee computations and Entries, capital lease with guar residual value) Leases automobile with FMV $10,906 - noncancelable 50 months, Rental $250 per month at END. Est residual $1,180 guaranteed Est life 60 mos incremental rate 12% a What is the nature of the lease? a To the lessee, this lease is a capital lease because the terms satisfy the following criteria: noncancelable 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 PV of the minimum lease payments is = to 96% of the fair value of the leased asset; that is, the PV of $10,5150 is 96% of the fair value of the leased asset 10,515 / 10,906 why don't these equal? b What is the PV of the lease payments? the lessee include the guaranteed residual value. The PV therefore is: Monthly payment of $250 for 50 mos 9,800 Residual value of $1,180 715 PV of minimum lease payments 10,515 PMT = 250 end N = 50, I = 12%, FV = 1180 PV = 10,515 c Record lease at inception Leased Property 10,515 Lease Liability 10,515 d Record first month's depreciation Depreciation Expense 187 Accum Depr - Capital Leases 187 (10,515 - 1180 / 50) e Record first month's lease payment Lease Liability 145 Interest Expense (1% x 10,515) 105 Cash 250 The minimum lease payments in the case of a guaranteed residual value by
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E 21-4 (lessor entries, direct financing lease with option to purchase)
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This note was uploaded on 01/13/2011 for the course ACT AC 557 taught by Professor George during the Spring '10 term at DeVry Chicago.

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Ch 21 HWp - Chapter 21 Homework E 21-1 (lessee entries,...

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