The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee 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 $313,043 Book value of asset at October 1, 2020 $280,000 Residual value at end of lease term –0– Lessor's implicit rate 8% Lessee's incremental borrowing rate 8% Annual lease payment due at the beginning of each year, beginning with October 1, 2020 $62,700 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 (8%) on Unpaid Liability/ Receivable Reduction of Lease Liability/Receivable Balance of Lease Liability/Receivable 10/01/20 $313,043 10/01/20 $162,700 $162,700 1250,343 10/01/21 $162,700 $20,027 1142,673 1207,670 10/01/22 $162,700 116,614 1146,086 1161,584 10/01/23 $162,700 112,927 1149,773 1111,811 10/01/24 $162,700 118,945 1153,755 1158,056 10/01/25 $162,700 114,644 1158,056 1–0– $376,200 $63,157 $313,043 Instructions a. Assuming the lessee's accounting period ends on September 30, 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 September 30, 2021? 2. What items and amounts will appear on the lessee's balance sheet at September 30, 2021? 3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2022? 4. What items and amounts will appear on the lessee's balance sheet at September 30, 2022? b. 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? 2. What items and amounts will appear on the lessee's balance sheet at December 31, 2020? 3. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2021? 4. What items and amounts will appear on the lessee's balance sheet at December 31, 2021?

The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee 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 $313,043 Book value of asset at October 1, 2020 $280,000 Residual value at end of lease term –0– Lessor's implicit rate 8% Lessee's incremental borrowing rate 8% Annual lease payment due at the beginning of each year, beginning with October 1, 2020 $62,700 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 (8%) on Unpaid Liability/ Receivable Reduction of Lease Liability/Receivable Balance of Lease Liability/Receivable 10/01/20 $313,043 10/01/20 $162,700 $162,700 1250,343 10/01/21 $162,700 $20,027 1142,673 1207,670 10/01/22 $162,700 116,614 1146,086 1161,584 10/01/23 $162,700 112,927 1149,773 1111,811 10/01/24 $162,700 118,945 1153,755 1158,056 10/01/25 $162,700 114,644 1158,056 1–0– $376,200 $63,157 $313,043 Instructions a. Assuming the lessee's accounting period ends on September 30, 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 September 30, 2021? 2. What items and amounts will appear on the lessee's balance sheet at September 30, 2021? 3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2022? 4. What items and amounts will appear on the lessee's balance sheet at September 30, 2022? b. 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? 2. What items and amounts will appear on the lessee's balance sheet at December 31, 2020? 3. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2021? 4. What items and amounts will appear on the lessee's balance sheet at December 31, 2021?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Instructions

a. Assuming the lessee's accounting period ends on September 30, 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 September 30, 2021?
2. What items and amounts will appear on the lessee's balance sheet at September 30, 2021?
3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2022?
4. What items and amounts will appear on the lessee's balance sheet at September 30, 2022?

b. 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?
2. What items and amounts will appear on the lessee's balance sheet at December 31, 2020?
3. What items and amounts will appear on the lessee's income statement for the year ending December 31, 2021?
4. What items and amounts will appear on the lessee's balance sheet at December 31, 2021?

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.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 8 steps with 7 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Commencement date	October 1, 2020
Lease term	6 years
Economic life of leased equipment	6 years
Fair value of asset at October 1, 2020	$313,043
Book value of asset at October 1, 2020	$280,000
Residual value at end of lease term	–0–
Lessor's implicit rate	8%
Lessee's incremental borrowing rate	8%
Annual lease payment due at the beginning of each year, beginning with October 1, 2020	$62,700

Date	Lease Payment/ Receipt	Interest (8%) on Unpaid Liability/ Receivable	Reduction of Lease Liability/Receivable	Balance of Lease Liability/Receivable
10/01/20				$313,043
10/01/20	$162,700		$162,700	1250,343
10/01/21	$162,700	$20,027	1142,673	1207,670
10/01/22	$162,700	116,614	1146,086	1161,584
10/01/23	$162,700	112,927	1149,773	1111,811
10/01/24	$162,700	118,945	1153,755	1158,056
10/01/25	$162,700	114,644	1158,056	1–0–
	$376,200	$63,157	$313,043