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The useful life of the copier is january 1 thereafter

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Unformatted text preview: thereafter through 2014.The useful life of the copier is estimated to be six years. Before deciding to lease, Sans Serif estimated to be six years. Before deciding to lease, Sans Serif considered purchasing the copier for its cash price of $479,079. If funds considered purchasing the copier for its cash price of $479,079. If funds were borrowed to buy the copier, the interest rate would have been 10%. were borrowed to buy the copier, the interest rate would have been 10%. At End of the Four Payment Dates San Serif Publishers, Inc. (Lessee) Prepaid rent 100,000 Cash 100,000 CompuDec Corporation (Lessor) Cash 100,000 Unearned rent revenue 100,000 15-11 Slide 12 Operating Leases - Example At the End of Each Year San Serif Publishers, Inc. (Lessee) Rent expense 100,000 Prepaid rent 100,000 CompuDec Corporation (Lessor) Unearned rent revenue 100,000 Rent revenue Depreciation expense Accumulated depreciation 100,000 xxx xxx 15-12 Slide 13 Capital Leases - Lessee The amount recorded (capitalized) is the present value of the minimum lease payments. minimum Minimum lease payments (MLP) Minimum - the total of periodic payments - any bargain purchase option price - any guaranteed residual value However, the amount recorded cannot exceed the fair value of the leased asset. of In calculating the present value of the MLP, the interest rate In used by the lessee is the lower of: used 1. Its incremental borrowing rate, or 2. The implicit interest rate used by the lessor. 15-13 Slide 14 Capital Leases - Lessor Direct Financing Leases If the lessor is not a manufacturer or dealer, the fair If value of the leased asset is typically the lessor’s cost. cost. Zero profit on the sale of the asset Zero (i.e., fair value of the asset = cost of the asset) Sales-Type Leases Sales-Type When the lessor is a manufacturer or dealer, the fair value of the property at the inception of the lease is likely to be its normal selling price. likely Positive profit on the sale of the asset Positive (i.e., fair value of the asset > cost of the asset) 15-14 Sl...
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