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Unformatted text preview: EXERCISE 211 (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 1 EXERCISE 212 (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........................Leased Property Under Capital Leases....
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 Winter '08
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