2011 Financial 5 Text Update - This first page gives a...

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This first page gives a listing of the corrected lecture text pages that follow. Print these corrected pages and insert in the lecture text. FINANCIAL Date Added Lecture Page Number Description 03/17/2011 F-5 18 Text change 03/17/2011 F-5 39 Text change 03/17/2011 F-5 47 Correction of number in journal entry 03/17/2011 F-5 53 Correction of page reference 03/17/2011 F-5 58 Text change 03/17/2011 F-5 61 Correction of page reference 03/17/2011 F-5 62 Correction of page reference 03/17/2011 F-5 68 Text change 03/24/2011 F-5 5 Delete text 03/24/2011 F-5 16 Change text 03/24/2011 F-5 24 Delete text; Change text 03/24/2011 F-5 36 Delete line from chart 03/24/2011 F-5 57 Change number 03/24/2011 F-5 58 Change number 04/18/2011 F-5 52 Updated Table – Premium Amortization of Serial Bonds
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Financial 5 Becker Professional Education | CPA Exam Review F5- 18 © 2010 DeVry/Becker Educational Development Corp. All rights reserved. EXAMPLE – LEASE LIABILITY AND ASSET AMORTIZATION– LESSEE'S BOOKS Assume that Beta Corporation leased an asset to Omega Corporation for ten years beginning January 1, Year 1 at $5,000 per year. The interest rate used is 10%, the lessor's rate, because it is lower than the lessee's rate and it is known. The first payment is due on January 1, Year 1 and the lease qualifies as a capital (finance) lease. The present value of the minimum lease payments is $33,795, and it is lower than the fair value of the asset at the inception of the lease. Required : Show the lease amortization schedule for this asset and the related journal entries on January 1, Year 1, December 31, Year 1, and January 1, Year 2. (1) (2) (3) (4) Interest on Reduction Carrying Annual Unpaid of Lease Amount of Lease Obligation Liability Lease Date Payment (10% × Col. 4) (1 - 2) Obligation 1/1/Year 1 $33,795.00 1/1/Year 1 $ 5,000 $ 5,000.00 28,795.00 1/1/Year 2 5,000 $ 2,879.50 2,120.50 26,674.50 1/1/Year 3 5,000 2,667.45 2,332.55 24,341.95 1/1/Year 4 5,000 2,434.20 2,565.80 21,776.15 1/1/Year 5 5,000 2,177.62 2,822.38 18,953.77 1/1/Year 6 5,000 1,895.38 3,104.62 15,849.15 1/1/Year 7 5,000 1,584.92 3,415.08 12,434.07 1/1/Year 8 5,000 1,243.41 3,756.59 8,677.48 1/1/Year 9 5,000 867.75 4,132.25 4,545.23 1/1/Year 10 5,000 454.77 * 4,545.28 * $50,000 = $16,205.00 + $33,795.00 *Rounded Journal entries – January 1, Year 1 Journal entry no. 1 is to record the lease on the lessee's books: Leased equipment under capital (finance) lease $33,795.00 Obligations under capital (finance) lease $33,795.00 Journal entry no. 2 is to record the first payment at lease inception: Obligations under capital (finance) lease $5,000.00 Cash $5,000.00 Journal entries – December 31, Year 1 Journal entry no. 1 is to accrue interest expense and liability: Interest expense $2,879.50 Interest payable $2,879.50 Journal entry no. 2 is to depreciate the asset over the ten-year lease life ($33,795 ÷ 10 years = $3,379.50): Depreciation expense $3,379.50 Accumulated depreciation—leased asset $3,379.50 Journal entries – January 1, Year 2 Journal entry to record the lease payment: Interest payable $2,879.50 Obligation under capital (finance) lease 2,120.50 Cash $5,000.00
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Becker Professional Education | CPA Exam Review Financial 5 © 2010 DeVry/Becker Educational Development Corp. All rights reserved.
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This note was uploaded on 09/25/2011 for the course ACCOUNTING AC591 taught by Professor W during the Spring '11 term at Keller Graduate School of Management.

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2011 Financial 5 Text Update - This first page gives a...

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