ORIE 4150 Lease Examples - ORIE 4150/5150 Lease Examples 1....

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ORIE 4150/5150 Lease Examples 1. Eureka Corporation leased a surface etcher from Callahan Industries. Eureka agreed to pay $4,525.60 per quarter for 5 years to lease the machine. There was neither an ownership transfer nor a bargain purchase option. The useful life of the machine was 8 years, with a residual value of zero. The annual interest rate was 8%, and the fair market value of the machine was $74,000. The machine was delivered and the lease was signed on January 1, 2009. Depreciation was straight line, full-year, recorded quarterly. a. Show the journal entry or entries Eureka Corporation must make on March 31, 2009 related to the lease. 1. OT? No 2. BPO? No 3. >75% useful life? No 4. >90% FMV? Yes (100%, in fact). It is a capital lease. The Lease Obligation is $74,000 at the start, the present value of lease payments. Interest expense = Lease Obligation × interest rate = 74,000 × 0.02 = $1,480 March 31, 2009 Interest Expense $1,480 Lease Obligation 3,045.60 Cash $4,425.60 Next, depreciate over the lease term, since there is no OT or BPO. March 31, 2009 Depreciation Expense $3,700 Accum. Depreciation $3,700 b. Show the journal entry or entries Callahan Industries must make on March 31,
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This note was uploaded on 03/08/2012 for the course ORIE 4150 taught by Professor Callister during the Spring '09 term at Cornell University (Engineering School).

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ORIE 4150 Lease Examples - ORIE 4150/5150 Lease Examples 1....

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