CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery forfour years beginning on 1 January 2010. Th e lease requires four annual payments of€28,679 starting on 1 January 2010. Th e useful life of the machine is four years, and itssalvage value is zero. CAPBS accounts for the lease as a fi nance lease. Th e fair value ofthe machine is €100,000. Th e present value of the lease payments using the company’sdiscount rate of 10 percent is €100,000. (A reminder is relevant for present value calculations: Lease payments are made at the beginning of each period.) Th e company usesstraight-line depreciation.1 . Comment on the appropriateness of CAPBS treating the lease agreement as afi nance lease under IFRS and a capital lease under US GAAP.2 . What is the amount reported as a leased asset on the balance sheet on 1 January2010? What depreciation expense is reported in fi scal year 2010?3 . What is the amount of the machinery reported as a leased asset on the balance sheeton 31 December 2010?4 . What is the amount of the lease liability reported on the balance sheet on 1 January2010? What interest expense is reported in fi scal year 2010?5 . What is the amount of the lease liability reported on the balance sheet on 31 December 2010? What interest expense is reported in fi scal year 2011?6 . If CAPBS had determined that the above lease was an operating lease, whatamount of expenses would be reported on the income statements in fi scal 2010and 2011? How does this expense compare to the expenses reported under acapital lease?
CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery forfour years beginning on 1 January 2010. Th e lease requires four annual payments of€28,679 starting on 1 January 2010. Th e useful life of the machine is four years, and itssalvage value is zero. CAPBS accounts for the lease as a fi nance lease. Th e fair value ofthe machine is €100,000. Th e present value of the lease payments using the company’sdiscount rate of 10 percent is €100,000. (A reminder is relevant for present value calculations: Lease payments are made at the beginning of each period.) Th e company usesstraight-line depreciation.1 . Comment on the appropriateness of CAPBS treating the lease agreement as afi nance lease under IFRS and a capital lease under US GAAP.2 . What is the amount reported as a leased asset on the balance sheet on 1 January2010? What depreciation expense is reported in fi scal year 2010?3 . What is the amount of the machinery reported as a leased asset on the balance sheeton 31 December 2010?4 . What is the amount of the lease liability reported on the balance sheet on 1 January2010? What interest expense is reported in fi scal year 2010?5 . What is the amount of the lease liability reported on the balance sheet on 31 December 2010? What interest expense is reported in fi scal year 2011?6 . If CAPBS had determined that the above lease was an operating lease, whatamount of expenses would be reported on the income statements in fi scal 2010and 2011? How does this expense compare to the expenses reported under acapital lease?
CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery forfour years beginning on 1 January 2010. Th e lease requires four annual payments of€28,679 starting on 1 January 2010. Th e useful life of the machine is four years, and itssalvage value is zero. CAPBS accounts for the lease as a fi nance lease. Th e fair value ofthe machine is €100,000. Th e present value of the lease payments using the company’sdiscount rate of 10 percent is €100,000. (A reminder is relevant for present value calculations: Lease payments are made at the beginning of each period.) Th e company usesstraight-line depreciation.1 . Comment on the appropriateness of CAPBS treating the lease agreement as afi nance lease under IFRS and a capital lease under US GAAP.2 . What is the amount reported as a leased asset on the balance sheet on 1 January2010? What depreciation expense is reported in fi scal year 2010?3 . What is the amount of the machinery reported as a leased asset on the balance sheeton 31 December 2010?4 . What is the amount of the lease liability reported on the balance sheet on 1 January2010? What interest expense is reported in fi scal year 2010?5 . What is the amount of the lease liability reported on the balance sheet on 31 December 2010? What interest expense is reported in fi scal year 2011?6 . If CAPBS had determined that the above lease was an operating lease, whatamount of expenses would be reported on the income statements in fi scal 2010and 2011? How does this expense compare to the expenses reported under acapital lease?
CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery for four years beginning on 1 January 2010. Th e lease requires four annual payments of €28,679 starting on 1 January 2010. Th e useful life of the machine is four years, and its salvage value is zero. CAPBS accounts for the lease as a fi nance lease. Th e fair value of the machine is €100,000. Th e present value of the lease payments using the company’s discount rate of 10 percent is €100,000. (A reminder is relevant for present value calculations: Lease payments are made at the beginning of each period.) Th e company uses straight-line depreciation. 1 . Comment on the appropriateness of CAPBS treating the lease agreement as a fi nance lease under IFRS and a capital lease under US GAAP. 2 . What is the amount reported as a leased asset on the balance sheet on 1 January 2010? What depreciation expense is reported in fi scal year 2010? 3 . What is the amount of the machinery reported as a leased asset on the balance sheet on 31 December 2010? 4 . What is the amount of the lease liability reported on the balance sheet on 1 January 2010? What interest expense is reported in fi scal year 2010? 5 . What is the amount of the lease liability reported on the balance sheet on 31 December 2010? What interest expense is reported in fi scal year 2011? 6 . If CAPBS had determined that the above lease was an operating lease, what amount of expenses would be reported on the income statements in fi scal 2010 and 2011? How does this expense compare to the expenses reported under a capital lease?
Definition Video Definition Accounting method wherein the cost of a tangible asset is spread over the asset's useful life. Depreciation usually denotes how much of the asset's value has been used up and is usually considered an operating expense. Depreciation occurs through normal wear and tear, obsolescence, accidents, etc. Video
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
