Ch21 solutions 7-14-P7

Ch21 solutions 7-14-P7 - CHAPTER 21 Accounting for Leases...

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Accounting for Leases EXERCISE 21-7 (20–25 minutes) (a) This is a capital lease to Flynn since the lease term is 75% (6 ÷ 8) of the asset’s economic life. In addition, the present value of the minimum lease payments is more than 90% of the fair value of the asset. This is a capital lease to Bensen since collectibility of the lease payments is reasonably predictable, there are no important uncertainties surrounding the costs yet to be incurred by the lessor, and the lease term is 75% of the asset’s economic life. Because the fair value of the equipment ($150,000) exceeds the lessor’s cost ($120,000), the lease is a sales- type lease. (b) Computation of annual rental payment: = $30,804 * *Present value of $1 at 11% for 6 periods. **Present value of an annuity due at 11% for 6 periods. (c) 1/1/07 Leased Equipment Under Capital Leases. ............................................... 141,846 Lease Liability. ............................... 141,846 ($30,804 X 4.60478)*** Lease Liability. ...................................... 30,804 Cash. ............................................... 30,804 ***Present value of an annuity due at 12% for 6 periods. 12/31/07 Depreciation Expense. ......................... 23,641 Accumulated Depreciation. .......... 23,641 ($141,846 ÷ 6 years) Interest Expense. .................................. 13,325
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Ch21 solutions 7-14-P7 - CHAPTER 21 Accounting for Leases...

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