405ch21summer2011

405ch21summer2011 - EXERCISE 21-1 (1520 minutes) (a) This...

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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
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EXERCISE 21-2 (20–25 minutes) (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. .................... 10,515 Lease Liability. ...................................................... 10,515 (d) Depreciation Expense. ................................................ 186.70 Accumulated Depreciation—Capital Leases. ............................................................... 186.70 [($10,515 – $1,180) ÷ 50 months = $186.70] (e) Lease Liability. ............................................................. 144.85 Interest Expense (1% X $10,515). ............................... 105.15 Cash. ...................................................................... 250.00 EXERCISE 21-3 (20–30 minutes) Capitalized amount of the lease:
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Yearly payment. .......................................................... $90,000.00
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405ch21summer2011 - EXERCISE 21-1 (1520 minutes) (a) This...

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