Week 4-Solutions to Problems 15 - 16

# Week 4-Solutions to Problems 15 - 16 - Hi Everyone ~ Here...

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Hi Everyone ~ Here are the solutions! Thanks, Ms.W. Solutions to Problems 15-57, 15-59 and 15-61 from the Intermediate Accounting textbook. 15–57. 1. Astle Manufacturing Company Books (Lessor): 2008 Jan. 2 Lease Payments Receivable 187,176 Sales 187,176* Cost of Goods Sold 120,000 Inventory 120,000 To record lease. COMPUTATIONS: *Sales (present value of annual lease payments + Present value of guaranteed residual amount): Present value of annual lease payments: PV n = \$32,000 + \$32,000(PVAF 5 10% ) PV n = \$32,000 + \$32,000(3.7908) PV n = \$153,306 or with a business calculator: First toggle so that the payments are assumed to occur at the beginning (BEG) of the period. PMT = \$32,000; N = 6; I = 10% PV = \$153,305 Present value of guaranteed residual amount: PV = \$60,000(PVF 6 10% ) PV = \$60,000(0.5645) PV = \$33,870 or with a business calculator: Make sure to toggle back so that the payments are assumed to occur at the end (END) of the period. FV = \$60,000; N = 6; I = 10% PV = \$33,868 Total present value: \$153,306 + \$33,870 = \$187,176 [ Note: The lease is a capital lease (sales-type) for the lessor because the sum of the present value of lease payments and the guaranteed residual value is equal to the fair market value of the asset (\$187,176).] Jan. 2 Cash 33,500

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Lease Payments Receivable 32,000 Executory Costs 1,500 Received first lease payment. Dec. 31 Cash 33,500 Interest Revenue 15,518* Lease Payments Receivable 16,482 Deferred Executory Costs 1,500 Received second lease payment. *\$187,176 – \$32,000 = \$155,176 \$155,176 × 0.10 = \$15,518 Haws Industries Co. Books (Lessee): 2008 Jan. 2 Rent Expense 33,500 Cash 33,500 Paid lease payment for 2008. Dec. 31 Prepaid Rent 33,500 Cash 33,500 Paid lease payment for 2009. [ Note: The lease is treated as an operating lease by the lessee because none of the four classification criteria are met. Title does not pass, there is no bargain purchase option, the lease term (6 years) is 66 2/3% of the economic life (9 years), and the present value of the lease payments is 81.9% (\$153,306/\$187,176) of the fair market value of the equipment. The lessee does not consider the third-party guaranteed residual value in determining the present value.]
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## This note was uploaded on 05/29/2011 for the course EC 2011 taught by Professor Johnson during the Spring '11 term at FIT.

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Week 4-Solutions to Problems 15 - 16 - Hi Everyone ~ Here...

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