Unformatted text preview: t June 30, 2013.
Georgia-Atlantic's incremental borrowing rate is 10%, the same rate Builders used to calculate lease payment amounts. Builders constructed the
warehouse at a cost of $2.5 million.
1. Determine the price at which Builders is “selling” the warehouse (present value of the lease payments) at June 30, 2013 (to the nearest $000).
2. What pretax amounts related to the lease would Builders (Lessor) report in its balance sheet at December 31, 2013?
3. What pretax amounts related to the lease would Builders (Lessor) report in its income statement for the year ended December 31, 2013?
Additional requirement: Prepare the journal entries for 2013 and 2014
Requirement 1: Lessor
PV of minimum lease payments Date Payment
12/31/2015 Interest Requirement 2 Lessor
Liability Payable Lessee: Lease Rec - Non Current:
T otal Assets:
Liabilities: - Long term liabilities Requirement 3 Lessor
Income Statement: Lessor:
Other Income: Each of the three independent situations below describes a capital lease in which annual lease payments are payable at the beginning of each year. The
l essee is aware of the lessor's implicit rate of return.
Lease term (years)
Lessor’s rate of return (known by lessee)
Lessee’s incremental borrowing rate
Fair value of leased asset
$600,000 $ 980,000 $ 185,000
Lease Payment Lease payments determined using the lessor's rate of return Leased asset/Liability Lease asset/liability determined using the lower of the Lessor's rate of return or
the Lessee's incremental bo...
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