{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

2-1-11 Solutions

# 2-1-11 Solutions - *QQ Q21-3 Lessees have available two...

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

**QQ Q21-3 Lessees have available two lease accounting methods: (a) the operating method and (b) the capital-lease method. Under the operating method, the leased asset remains the property of the lessor with the payment of a lease rental recognized as rental expense. Generally the lessor pays the insurance, taxes, and maintenance costs related to the leased asset. Under the capital-lease method, the lessee treats the lease transaction as if an asset were being purchased on credit; therefore, the lessee: (1) sets up an asset and a related obligation and (2) recognizes depreciation of the asset, reduction of the obligation, and interest expense.

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

View Full Document
EXERCISE 21-1 (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
EXERCISE 21-2 (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

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

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern