On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming Lthe lease is reported as an operating lease. the lease is reported as a finance lease. Note: Use negative signs with your answers, when appropriate. Note: Select "NA" as your answer if a part of the accounting equation is not affected. Note: Round answers to the nearest whole dollar. L. Operating Lease: Finance Lease Operating lease commences Lease payment Transaction Record lease expense and changes to asset and ability Transaction Amortization of leased asset Cash Cash Asset Cash NA (18,000) Cash Asset NIA (18,000) ✔NIA Noncash Assets b. Explain how the financial statement effects differ between the two treatments. NIA NA Right-of-use asset-finance lease Right-of use asset-operating leas 85,798 Assets Right-of use asset-operating leas . 85,798 M NIA ou .M K Centra Assets Accumulated amortization Centra Assets Operating ease liability Balance Sheet Balance Sheet Operating as liability Operating ease liablity X Liabities . 85,798 France lease liability (18,000) Liabilities 6,006 . BM The amount of expense recognized on the income statement in the early years of a finance lease is greater than expense recognized in the early years of an operating lease $5 N/A ✔ M . ✓ Contributed Capital Contributed Capital NIA DV Retained earrings NIA Earned Capital Readings Earned Capital Retained earnings DV ✔ x ✔ XI ✓ x • M Contra Equity Contra Equity Revenue. NIA Income Statement Revenue Expenses Amortization expense Interest expense ou # ✔ .✔ Income Statement Lease expense Net Income M Expenses Net Income ex
On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%. a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming Lthe lease is reported as an operating lease. the lease is reported as a finance lease. Note: Use negative signs with your answers, when appropriate. Note: Select "NA" as your answer if a part of the accounting equation is not affected. Note: Round answers to the nearest whole dollar. L. Operating Lease: Finance Lease Operating lease commences Lease payment Transaction Record lease expense and changes to asset and ability Transaction Amortization of leased asset Cash Cash Asset Cash NA (18,000) Cash Asset NIA (18,000) ✔NIA Noncash Assets b. Explain how the financial statement effects differ between the two treatments. NIA NA Right-of-use asset-finance lease Right-of use asset-operating leas 85,798 Assets Right-of use asset-operating leas . 85,798 M NIA ou .M K Centra Assets Accumulated amortization Centra Assets Operating ease liability Balance Sheet Balance Sheet Operating as liability Operating ease liablity X Liabities . 85,798 France lease liability (18,000) Liabilities 6,006 . BM The amount of expense recognized on the income statement in the early years of a finance lease is greater than expense recognized in the early years of an operating lease $5 N/A ✔ M . ✓ Contributed Capital Contributed Capital NIA DV Retained earrings NIA Earned Capital Readings Earned Capital Retained earnings DV ✔ x ✔ XI ✓ x • M Contra Equity Contra Equity Revenue. NIA Income Statement Revenue Expenses Amortization expense Interest expense ou # ✔ .✔ Income Statement Lease expense Net Income M Expenses Net Income ex
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question

Transcribed Image Text:Accounting for Leases (FSET)
On January 3, Hanna Corporation signed a lease on a machine for its manufacturing operation and the lease commences on the same date. The lease requires Hanna to make six annual lease payments of $18,000 with the first payment due December 31. Hanna could have financed the machine by borrowing the purchase price at an interest rate of 7%.
a. Using the financial statement effects template, report the entries that Hanna Corporation would make on January 3 and December 31 to record this lease assuming
1. the lease is reported as an operating lease.
II. the lease is reported as a finance lease.
Note: Use negative signs with your answers, when appropriate.
Note: Select "NA" as your answer if a part of the accounting equation is not affected.
to the nearest
• Note: Round answers to the nearest whole dollar.
1. Operating Lease:
II. Finance Lease:
Operating lease commences
Lease payment.
Transaction
Record lease expense and changes to asset and liability.
Transaction
Finance lease commences
Amortization of leased asset.
Made annual lease payment
Cash
Check
Cash
Asset
Cash
NVA
(18,000)✓
Cash
Asset
N/A
(18,000)
✔ N/A
b. Explain how the financial statement effects differ between the two treatments.
#
0✓
✔N/A
Noncash
Assets
Right-of-use asset-finance lease
Right-of-use asset-operating lease
Noncash
Assets
✔ Right-of-use asset-operating lease
85,798 ✔
85,798✔
✔
N/A
x
Contra
- Assets -
✔
✔
Contra
Assets
✔ Accumulated amortization
Operating lease liability
Operating lease liablity
Balance Sheet
Balance Sheet
Operating lease liability
x
Liabilities
✔
✔
Finance lease liability
85,798 ✔
Finance lease liability
(18,000)
Liabilities
6,006✔
The amount of expense recognized on the income statement in the early years of a finance lease is greater than ✔ expense recognized in the early years of an operating lease.
=
#
✔N/A
#v
85,798 ✔
x
Contributed
Capital
Contributed
+ Capital.
✓
NVA
0✓
Retained earnings
N/A
Earned
Capital
Retained earnings
Earned
Capital
Retained earnings
x
x
✔
✔
0✔
x
Contra
- Equity
✔
Contra
Equity Revenue.
N/A
Income Statement
Revenue
Expenses
Amortization expense
Interest expense
X
#
x
Income Statement
✔Lease expense
Net
Income
x
X
Expenses
Net
Income
0x
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