At January 1 of the current year, Widget World Corporation leased manufacturing equipment from Clinton Corporation under a 6-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1 of the current year, the beginning of the lease, and on each December 31 thereafter. The equipment was acquired recently by Clinton at a cost of $146,163 (its fair value) and was expected to have a useful life of 8 years with no salvage value at the end of its life. Because the lease term is only 6 years, the asset does have an expected residual value at the end of the lease term of $28,000. Clinton seeks a 7% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. Required: 1. Determine the present value of the lease using Excel's PV function. 2. Prepare the journal entry for Widget World Corporation at the beginning of the lease on January 1 of the current year. 3. Prepare a partial amortization schedule for the first year of the lease. 4. Record the first lease payment on January 1 of the current year. 5. Record the amortization of the right-of-use asset on December 31 of the current year. 6. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements.
At January 1 of the current year, Widget World Corporation leased manufacturing equipment from Clinton Corporation under a 6-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1 of the current year, the beginning of the lease, and on each December 31 thereafter. The equipment was acquired recently by Clinton at a cost of $146,163 (its fair value) and was expected to have a useful life of 8 years with no salvage value at the end of its life. Because the lease term is only 6 years, the asset does have an expected residual value at the end of the lease term of $28,000. Clinton seeks a 7% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease. Required: 1. Determine the present value of the lease using Excel's PV function. 2. Prepare the journal entry for Widget World Corporation at the beginning of the lease on January 1 of the current year. 3. Prepare a partial amortization schedule for the first year of the lease. 4. Record the first lease payment on January 1 of the current year. 5. Record the amortization of the right-of-use asset on December 31 of the current year. 6. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:At January 1 of the current year, Widget World Corporation leased manufacturing equipment from Clinton Corporation
under a 6-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1 of
the current year, the beginning of the lease, and on each December 31 thereafter. The equipment was acquired
recently by Clinton at a cost of $146,163 (its fair value) and was expected to have a useful life of 8 years with no
salvage value at the end of its life. Because the lease term is only 6 years, the asset does have an expected residual
value at the end of the lease term of $28,000. Clinton seeks a 7% return on its lease investments. By this
arrangement, the lease is deemed to be a finance lease.
Required:
1. Determine the present value of the lease using Excel's PV function.
2. Prepare the journal entry for Widget World Corporation at the beginning of the lease on January 1 of the current
year.
3. Prepare a partial amortization schedule for the first year of the lease.
4. Record the first lease payment on January 1 of the current year.
5. Record the amortization of the right-of-use asset on December 31 of the current year.
6. Indicate the amounts related to the lease reported on the year-end balance sheets and income statements.
Navigation:
1. Use the Open Excel in New Tab button to launch this question.
2. When finished in Excel, use the Save and Return to Assignment button in the lower right to return to Connect.
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