If lease does not transfer ownership depreciate over

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Unformatted text preview: If lease does not transfer ownership, depreciate over the term of the lease. Chapter 15-15 (Capital Lease with Unguaranteed Residual Value) On January 1, 2007, Burke Corporation signed a 5-year noncancelable lease for a machine. The terms of the lease called for Burke to make annual payments of $8,668 at the beginning of each year, starting January 1, 2007. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value . Burke uses the straight-line method of depreciation for all of its plant assets. Burke’s incremental borrowing rate is 10%, and the Lessor’s implicit rate is unknown. Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Instructions (a) What type of lease is this? Explain. (b) Compute the present value of the minimum lease payments. (c) Prepare all journal entries for Burke through Jan. 1, 2008. Chapter 15-16 What type of lease is this? Explain. Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Capitalization Criteria: Capitalization Criteria: 1. 1. Transfer of ownership Transfer of ownership 2. 2. Bargain purchase option Bargain purchase option 3. 3. Lease term => 75% of economic life Lease term => 75% of economic life of leased property of leased property 4. 4. Present value of minimum lease Present value of minimum lease payments => 90% of FMV of payments => 90% of FMV of property property Chapter 15-17 Compute present value of the minimum lease payments. Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Chapter 15-18 Lease Amortization Schedule Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Chapter 15-19 Journal entries for Burke through Jan. 1, 2008. Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Chapter 15-20 Journal entries for Burke through Jan. 1, 2008. Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Chapter 15-21 Comparison of Capital Lease with Operating Lease Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee Accounting by the Lessee E2 1-1 Capital Le as e O pe r ating De pr e c iatio n I nte r e s t Le as e Date Ex pe ns e Ex pe ns e T o tal Ex pe ns e Dif f . 2 0 0 7 7 ,2 2 9 $ 2 ,7 4 8 $ 9 ,9 7 7 $ 8 ,6 6 8 $ 1,3 0 9 $ 2 0 0 8 7 ,2 2 9 2 ,15 6 9 ,3 8 5 8 ,6 6 8 7 17 2 0 0 9 7 ,2 2 9 1,5 0 4 8 ,7 3 3 8 ,6 6 8 6 5 2 0 0 9 7 ,2 2 9 7 8 8 8 ,0 17...
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If lease does not transfer ownership depreciate over the...

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