Chapter_21_Lease

Chapter_21_Lease - 1 Chapter 21 EXERCISE 21-1(15–20...

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Unformatted text preview: 1 Chapter 21 EXERCISE 21-1 (15–20 minutes) (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 21-4 (20–25 minutes) Computation of annual payments Cost (fair market value) of leased asset to lessor .................... $240,000.00 Less: Present value of salvage value (residual value in this case) $16,000 X .82645 (Present value of 1 at 10% for 2 periods) ....................... 13,223.20 Amount to be recovered through lease payments ................... $226,776.80 Two periodic lease payments $226,776.80 ÷ 1.73554* .............. $130,666.42 2 *Present value of an ordinary annuity of 1 for 2 periods at 10% KRAUSS LEASING COMPANY (Lessor) Lease Amortization Schedule Date Annual Payment Less Executory Costs Interest on Lease Receivable Recovery of Lease Receivable Lease Receivable 1/1/11 $240,000.00 12/31/11 $130,666.42 * $24,000.00 $106,666.42 133,333.58 12/31/12 130,666.42 * 13,332.84 * 117,333.58 16,000.00 * $37,332.84 *Difference of $.52 due to rounding. (a) 1/1/11 Lease Receivable ...................... 240,000.00 Equipment ......................... 240,000.00 12/31/11 Cash ($130,666.42 + $7,000) ..... 137,666.42 Executory Costs Payable .......................... 7,000.00 Lease Receivable .............. 106,666.42 Interest Revenue ............... 24,000.00 12/31/12 Cash........................................... 137,666.42 Executory Costs Payable .......................... 7,000.00 Lease Receivable .............. 117,333.58 Interest Revenue ............... 13,332.84 (b) 12/31/12 Cash........................................... 16,000.00 Lease Receivable .............. 16,000.00 EXERCISE 21-6 (15–20 minutes) (a) $38,514 X 5.7122* = $220,000 *Present value of an annuity due of 1 for 8 periods at 11%....
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This note was uploaded on 09/29/2011 for the course ACCT 302 taught by Professor Staff during the Spring '11 term at S.F. State.

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Chapter_21_Lease - 1 Chapter 21 EXERCISE 21-1(15–20...

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