Financial Statement Reporting for an Operating LeaseHarmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor'seconomic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at theend of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.)a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to thenearest cent. Enter your answer as a positive value.$b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent.$c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value.$d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answeras a positive value.$e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter youranswer as a positive value.$f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.$ TABLE 19-1Financial Reporting for LeasesPart 1: Preliminary CalculationsLease liability balance²Imputed interest expensebLease paymentPart 2: Reporting an Operating LeaseLease liability balanceRight-of-use asset balanceLease expensedPart 3: Reporting a Finance LeaseLease liability balanceRight-of-use asset balanceInterest expenseAmortization expensesTotal lease expenseYear 0$26,730Year 0$26,730$26,730Year 0$26,730$26,730Year 1$18,334$ 1,604$10,000Year 1$18,334$18,334$10,000Year 1$18,334$ 17,820$ 1,604$ 8,910$10,514Year 2$ 9,434$ 1,100$10,000Year 2$ 9,434$ 9,434$10,000Year 2$ 9,434$ 8,910$ 1,100$ 8,910$10,010Year 3$0$ 566$10,000Year 3$0$0$10,000Year 3$0$0$566$8,910$9,476Source: See the file Ch19 Tool Kit.xlsx. Numbers in the table are shown as rounded values for clarity in reporting. However, unrounded values areused for all calculations.Notes:"The lease liability in Year O is equal to the initial lease liability. For subsequent years, the lease liability balance is equal to the previous balance plusthe imputed interest minus the lease payment.*The imputed interest for the end of Yeart is equal to the cost of debt (r) multiplied by the lease liability payment at the beginning of Year t.The right-of-use asset balance for an operating lease is equal to the lease liability balance.*The lease expense for an operating lease is equal to the lease payment.*The right-of-use balance for a finance lease is equal to the previous balance minus the amortization charge.'The interest expense for a finance lease is equal to the imputed interest.The amortization charge for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease.

A lease is a contract in which a landlord (the lessor) offers the tenant (the lessee) the right to…

Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q