The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Pharoah Electronics, a lessee, for a computer system. Commencement date October 1, 2020 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at October 1, 2020 $262,056 Book value of asset at October 1, 2020 $280,000 Residual value at end of lease term –0– Lessor’s implicit rate 10 % Lessee’s incremental borrowing rate 10 % Annual lease payment due at the beginning of each year, beginning with October 1, 2020 $54,700 The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor. Date Lease Payment/Receipt Interest (10%) on Unpaid Liability/Receivable Reduction of Lease Liability/Receivable Balance of Lease Liability/Receivable 10/01/20 $262,056 10/01/20 $54,700 $54,700 207,356 10/01/21 54,700 $20,736 33,964 173,392 10/01/22 54,700 17,339 37,361 136,031 10/01/23 54,700 13,603 41,097 94,934 10/01/24 54,700 9,493 45,207 49,727 10/01/25 54,700 4,973 49,727 –0– $328,200 $66,144 $262,056 Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2020? Interest Expense $ Amortization Expense $ (2) What items and amounts will appear on the lessee’s balance sheet at December 31, 2020? Balance Sheet (Partial) December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020 Current Liabilities: $ Long-term Liabilities: $ Non-current Assets: $ (3) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2021? Interest Expense $ Amortization Expense $ (4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2021? Balance Sheet (Partial) December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021 Current Liabilities: $ Long-term Liabilities: $ Non-current Assets: $

The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Pharoah Electronics, a lessee, for a computer system. Commencement date October 1, 2020 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at October 1, 2020 $262,056 Book value of asset at October 1, 2020 $280,000 Residual value at end of lease term –0– Lessor’s implicit rate 10 % Lessee’s incremental borrowing rate 10 % Annual lease payment due at the beginning of each year, beginning with October 1, 2020 $54,700 The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor. Date Lease Payment/Receipt Interest (10%) on Unpaid Liability/Receivable Reduction of Lease Liability/Receivable Balance of Lease Liability/Receivable 10/01/20 $262,056 10/01/20 $54,700 $54,700 207,356 10/01/21 54,700 $20,736 33,964 173,392 10/01/22 54,700 17,339 37,361 136,031 10/01/23 54,700 13,603 41,097 94,934 10/01/24 54,700 9,493 45,207 49,727 10/01/25 54,700 4,973 49,727 –0– $328,200 $66,144 $262,056 Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2020? Interest Expense $ Amortization Expense $ (2) What items and amounts will appear on the lessee’s balance sheet at December 31, 2020? Balance Sheet (Partial) December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020 Current Liabilities: $ Long-term Liabilities: $ Non-current Assets: $ (3) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2021? Interest Expense $ Amortization Expense $ (4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2021? Balance Sheet (Partial) December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021 Current Liabilities: $ Long-term Liabilities: $ Non-current Assets: $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Pharoah Electronics, a lessee, for a computer system.

Commencement date	October 1, 2020
Lease term	6	years
Economic life of leased equipment	6	years
Fair value of asset at October 1, 2020	$262,056
Book value of asset at October 1, 2020	$280,000
Residual value at end of lease term	–0–
Lessor’s implicit rate	10	%
Lessee’s incremental borrowing rate	10	%
Annual lease payment due at the beginning of
each year, beginning with October 1, 2020	$54,700

The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor.

Date	Lease Payment/Receipt	Interest (10%) on Unpaid Liability/Receivable	Reduction of Lease Liability/Receivable	Balance of Lease Liability/Receivable
10/01/20				$262,056
10/01/20	$54,700		$54,700	207,356
10/01/21	54,700	$20,736	33,964	173,392
10/01/22	54,700	17,339	37,361	136,031
10/01/23	54,700	13,603	41,097	94,934
10/01/24	54,700	9,493	45,207	49,727
10/01/25	54,700	4,973	49,727	–0–
	$328,200	$66,144	$262,056

Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement.

(1) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2020?

Interest Expense $

Amortization Expense $

(2) What items and amounts will appear on the lessee’s balance sheet at December 31, 2020?

Balance Sheet (Partial) December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
Current Liabilities:
			$
Long-term Liabilities:
			$
Non-current Assets:
			$

(3) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2021?

Interest Expense $

Amortization Expense $

(4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2021?

Balance Sheet (Partial) December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021
Current Liabilities:
			$
Long-term Liabilities:
			$
Non-current Assets:
			$

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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