amount of the entire lease payment in the case of the more common operating expense.” (Criteria of a Capital lease 2019)/c/capitallease.asp Peyton Approved breaks down the lease payments and interest into monthly payments of $20,000 for 6 years at 5% interest the total capital lease obligation is $101,513.82. The company would record the remaining payments as a liability and the equipment as a fixed asset. Payton Approved will need to deduct the interest portion of the payment as an interest expense and the depreciation on the equipment would be under depreciation expense. As these expenses will reduce net income the capital lease could result in lower taxes as compared to an operating lease. Postretirement benefits can have a big impact on short and long-term finances for companies. Peyton Approves has decided to provide their employees with health insurance. They will set aside money for the retired employees and is recorded in the accrued pension liability account. Total pension liability for their 60 retired employees is $107,041.70. They will debit pension expense and credit accrued employee health insurance for $43,718.91. The services and interest costs are created because another year lapsed and the employee received another year credit for their services and the employee is one year closer to retirement, which creates an additional liability for the company. Capital Lease . (2019, April29). Retrieved June 5, 2019, from Investopedia: Criteria for a capital lease . (2019, January 5). Retrieved June 4, 2019, from : - a-capital-lease.html
Whales, J.J. (2017). Intermediate Accounting: Reporting and Analysis . Boston: Cengage Learning
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