At January 1, 2018, Butterfly, Inc. leased mining equipment from Diamond Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $62,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Diamond at a cost of $444,100 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $39,800.) Diamond seeks a 11% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Required:1. What will be the effect of the lease on Butterfly’s earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.)2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Butterfly (ignore taxes)? (For all requirements, round your intermediate calculations and final answers to nearest whole dollar.) 1. Effect on earnings 2. Lease payable balance (end of year) Right-of-use asset balance (end of year)

Solution 1 Right to use assets Annual lease payment 62000 *cumulative PV factor for…

Answered: At January 1, 2018, Butterfly, Inc.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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