Terms of a lease agreement and related facts were: a. Leased asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor’s implicit rate when calculating annual rental payments was 10%. d. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were $2,062. e. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs to the lessor that were yet to be incurred. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its inception, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset (direct financing lease). Also assume that adjusting the net investment by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset (sales-type lease).
Terms of a lease agreement and related facts were: a. Leased asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor’s implicit rate when calculating annual rental payments was 10%. d. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were $2,062. e. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs to the lessor that were yet to be incurred. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its inception, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset (direct financing lease). Also assume that adjusting the net investment by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset (sales-type lease).
Terms of a lease agreement and related facts were: a. Leased asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor’s implicit rate when calculating annual rental payments was 10%. d. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were $2,062. e. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs to the lessor that were yet to be incurred. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its inception, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset (direct financing lease). Also assume that adjusting the net investment by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset (sales-type lease).
Terms of a lease agreement and related facts were: a. Leased asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor’s implicit rate when calculating annual rental payments was 10%. d. Costs of negotiating and consummating the completed lease transaction incurred by the lessor were $2,062. e. Collectibility of the lease payments by the lessor was reasonably predictable and there were no costs to the lessor that were yet to be incurred. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its inception, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset (direct financing lease). Also assume that adjusting the net investment by initial direct costs reduces the effective rate of interest to 9%. 3. The lease term is six years and the lessor paid $85,000 to acquire the asset (sales-type 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
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