Date Account Titles and Explanation Debit Credit (To record the lease.) (To record lease payment.) (To record interest.) (To record amortization.) Crane Inc. was incorporated in 2024 to operate as a computer software service firm, with an accounting fiscal year ending August 31. Crane's primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system. Crane has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $49,000 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 15 years. All rentals are payable on the first day of the month beginning with August 1, 2025, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the Alpha-3 system. This lease is to be accounted for as a finance lease by Crane, and it will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Crane 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of each period. Periods (months) Present Value of an Annuity Due Discounted at 0.5% per Period 1 1.000 2 1.995 3 2.985 143 102.497 144 102.987
Date Account Titles and Explanation Debit Credit (To record the lease.) (To record lease payment.) (To record interest.) (To record amortization.) Crane Inc. was incorporated in 2024 to operate as a computer software service firm, with an accounting fiscal year ending August 31. Crane's primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system. Crane has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $49,000 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 15 years. All rentals are payable on the first day of the month beginning with August 1, 2025, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the Alpha-3 system. This lease is to be accounted for as a finance lease by Crane, and it will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Crane 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of each period. Periods (months) Present Value of an Annuity Due Discounted at 0.5% per Period 1 1.000 2 1.995 3 2.985 143 102.497 144 102.987
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Date
Account Titles and Explanation
Debit
Credit
(To record the lease.)
(To record lease payment.)
(To record interest.)
(To record amortization.)
Transcribed Image Text:Crane Inc. was incorporated in 2024 to operate as a computer software service firm, with an accounting fiscal year ending August 31.
Crane's primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using
the system.
Crane has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $49,000 for the 144
months (12 years) of the lease term. The estimated useful life of the computer is 15 years.
All rentals are payable on the first day of the month beginning with August 1, 2025, the date the computer was installed and the lease
agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the
Alpha-3 system.
This lease is to be accounted for as a finance lease by Crane, and it will be amortized by the straight-line method. Borrowed funds for
this type of transaction would cost Crane 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due
for selected periods discounted at 0.5% per period when payments are made at the beginning of each period.
Periods
(months)
Present Value of an Annuity Due
Discounted at 0.5% per Period
1
1.000
2
1.995
3
2.985
143
102.497
144
102.987
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