Su06Ch21_Solutions

Su06Ch21_Solutions - CHAPTER 21 SOLUTIONS TO EXERCISES...

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21-1 CHAPTER 21 SOLUTIONS TO EXERCISES EXERCISE 21-8 (20-30 minutes) (a) The lease agreement has a bargain purchase option and thus meets the criteria to be classified as a capital lease from the viewpoint of the lessee. The present value of the minimum lease payments exceeds 90% of the fair value of the assets. (b) The lease agreement has a bargain purchase option. The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lease, therefore, qualifies as a capital-type lease from the viewpoint of the lessor. Due to the fact that the initial amount of lease receivable (net investment) (which in this case equals the present value of the minimum lease payments, $91,000) exceeds the lessor’s cost ($65,000), the lease is a sales-type lease. (c) Computation of lease liability: $21,227.65 Annual rental payment X 4.16986 PV of annuity due of 1 for n = 5, i = 10% $88,516.32 PV of periodic rental payments $ 4,000.00 Bargain purchase option X .62092 PV of 1 for n= 5, i = 10% $ 2,483.68 PV of bargain purchase option $88,516.32 PV of periodic rental payments + 2,483.68 PV of bargain purchase option $91,000.00 Lease liability DENISE RODE COMPANY (Lessee) Lease Amortization Schedule Date Annual Lease Payment Plus BPO Interest (10%)on Liability Reduction of Lease Liability Lease Liability 5/1/04 $91,000.00 5/1/04 $ 21,227.65 $21,227.65 69,772.35 5/1/05 21,227.65 * $ 6,977.24 14,250.41 55,521.94 5/1/06 21,227.65 5,552.19 15,675.46 39,846.48 5/1/07 21,227.65 3,984.65 17,243.00 22,603.48 5/1/08 21,227.65 2,260.35 18,967.30 3,636.18 4/30/09 4,000.00 * 363.82 * 3,636.18 0 $110,138.25 $19,138.25 $91,000.00 *Rounding error is 20 cents.
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21-2 (d) 5/1/04 Leased Equipment Under Capital Leases . ................................. 91,000.00 Lease Liability. ............................. 91,000.00 Lease Liability. ...................................... 21,227.65 Cash. ............................................. 21,227.65 12/31/04 Interest Expense. .................................. 4,651.49 Interest Payable. .......................... 4,651.49 ($6,977.24 X 8/12 = $4,651.49) Depreciation Expense. ......................... 6,066.67 Accumulated Depreciation —Capital Leases. ..................... 6,066.67 ($91,000.00 ÷ 10 = ( $9,100.00; $9,100.00 X ( 8/12 = $6,066.67) 1/1/05 Interest Payable. ................................... 4,651.49 Interest Expense. ......................... 4,651.49 5/1/05 Interest Expense. .................................. 6,977.24 Lease Liability. ...................................... 14,250.41 Cash. ............................................. 21,227.65 12/31/05 Interest Expense. .................................. 3,701.46 Interest Payable. .......................... 3,701.46 ($5,552.19 X 8/12 = ( $3,701.46) 12/31/05 Depreciation Expense. ......................... 9,100.00 Accumulated Depreciation —Capital Leases. ..................... 9,100.00 ($91,000.00 ÷ 10 years =
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Su06Ch21_Solutions - CHAPTER 21 SOLUTIONS TO EXERCISES...

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