Lease Accounting. On January 1, Moran Inc. entered into a noncancelable 10 -year lease for computer equipment with a fair value of $120 million and requiring annual $16.304 milion year-end lease payments. The company's year-end is December 31. The implicit interest rate is 6%. Required 1. Assuming that the lease accounted for as a finance lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1? Note: Use Excel and round to the nearest million (i.e. show 128.543 as 129) A Finance lease asset and a finance lease liability will be capitalized on the balance sheet for: $ 0 million. 2. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded with regard to the lease on December 31 (at the end of the first year)? Note: Round all entries to three decimal points. Use rounded amounts in any further calculations. Item Increase/Decrease O million O million O million O million O million Cash Interest expense Lease obligation Amortization expense Leased asset 3. What are the total expenses associated with the lease in the second year if it is accounted for as an operating lease? As a finance lease? Note: Round all entries to three decimal points. Expense Item (millions) Operating Lease Finance Lease Operating lease expense s Interest expense Amortization expense Os Total OS
Lease Accounting. On January 1, Moran Inc. entered into a noncancelable 10 -year lease for computer equipment with a fair value of $120 million and requiring annual $16.304 milion year-end lease payments. The company's year-end is December 31. The implicit interest rate is 6%. Required 1. Assuming that the lease accounted for as a finance lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1? Note: Use Excel and round to the nearest million (i.e. show 128.543 as 129) A Finance lease asset and a finance lease liability will be capitalized on the balance sheet for: $ 0 million. 2. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded with regard to the lease on December 31 (at the end of the first year)? Note: Round all entries to three decimal points. Use rounded amounts in any further calculations. Item Increase/Decrease O million O million O million O million O million Cash Interest expense Lease obligation Amortization expense Leased asset 3. What are the total expenses associated with the lease in the second year if it is accounted for as an operating lease? As a finance lease? Note: Round all entries to three decimal points. Expense Item (millions) Operating Lease Finance Lease Operating lease expense s Interest expense Amortization expense Os Total OS
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Lease Accounting.
On January 1, Moran Inc. entered into a noncancelable 10 -year lease for computer equipment with a fair value of $120 million and requiring annual $16.304 milion year-end lease payments. The company's year-end is December 31. The implicit interest rate is 6%.
Required
1. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1?
Note: Use Excel and round to the nearest million (i.e. show 128.543 as 129)
A Finance lease asset and a finance lease liability will be capitalized on the balance sheet for: $ 0
million.
2. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded with regard to the lease on December 31 (at the end of the first year)?
Note: Round all entries to three decimal points. Use rounded amounts in any further calculations.
Item
Increase/Decrease
Cash
O million
Interest expense
O million
Lease obligation
수 $
O million
Amortization expense
O million
Leased asset
O million
3. What are the total expenses associated with the lease in the second year if it is accounted for as an operating lease? As a finance lease?
Note: Round all entries to three decimal points.
Expense Item (millions) Operating Lease Finance Lease
Operating lease expense $
Interest expense
Amortization expense
Total
Please answer all parts of the question.
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