Chapter 21 solutions to exercises and problems

Chapter 21 solutions to exercises and problems - EXERCISE...

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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
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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
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Chapter 21 solutions to exercises and problems - EXERCISE...

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