ACE entered into a noncancelable lease on January 2, 2019 with the following terms:
A. ACE, a non-public
company leased machinery manufactured by the lessor, Bell Corp., which enables ACE to manufacture their electric cars in a much more efficient manner.
B. The lease term is for 3 years with an annual lease payment of $10,000. Payment is due on December 31 of each year, with the first payment due on December 31, 2019. At the end of the lease term, ownership reverts to the lessor. There is no option for ACE to buy the equipment.
C. The lessee will pay all executor costs of $1,500/year.
D. The estimated useful life of the lease is 5 years
E. The fair market value of the equipment is $60,000 on January 1, 2019.
F. The implicit rate to Bell Corp. on this lease is 6 percent, and the lessee, ACE, knows this.
G. ACE's incremental borrowing rate is 7 percent.
H. The risk-free interest rate is 5%
1.A-Under the old lease rules-ASC 840, what is the balance sheet difference effect of an operating lease versus a capital lease? B-Is this a particular lease a capital lease or an operating lease? Why?
2.Under the newly adapted lease rules-ASC 842, what type of lease is this? Why
3. do a partial balance sheet as of 12/31/19 showing the effects of the above -for number 2 only
4-do a partial income statement for the calendar year 2020 showing the effects of number 2 only
5.do a partial statement of cash flow statement for the 2021 calendar year showing the effects of number 2 only