Financial Accounting: The Impact on Decision Makers
10th Edition
ISBN: 9781305654174
Author: Gary A. Porter, Curtis L. Norton
Publisher: Cengage Learning
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Chapter 10, Problem 10.9E
Leased Assets
Koffman and Sons signed a four-year lease for a forklift on January 1, 2016. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2016.
Required
- Assume that the lease is treated as an operating lease.
- Will the value of the forklift appear on Koffman’s
balance sheet ? - What account will indicate that lease payments have been made?
- Assume that the lease is treated as a capital lease.
- Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040
- Prepare the
journal entry to record the first lease payment on December 31, 2016. - Calculate the amount of
depreciation expense for the year 2016. - At what amount would the lease obligation be presented on the balance sheet as of December 31, 2016?
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Leased Assets
Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,616, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017.
PV of Annuity of $1
Required:
Refer to the table above for present value factors.
1. Assume that the lease is treated as an operating lease.
a. Will the value of the forklift appear on Koffman's balance sheet?No
b. What account will indicate that lease payments have been made?Lease expense
From the viewpoint of the lessee, there are two types of lease agreements: operating and capital. In an operating lease, the lessee acquires the right to use an asset for a limited period of time. The lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability.
2. Assume that the lease is treated as a capital lease or finance lease.
a. Identify and analyze the effect when…
Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E - So Co. with the following terms:
Annual lease payment: $660,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in
the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a
finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease.
Accounting for Leases Using Finance and Operating Lease Methods
Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms:
Annual lease payment: $770,000
Term of lease: 5 years
Interest rate: 4%
Lease commences on January 1, 2023
Payments are made on December 31 of each year in the lease term
For parts a and b:
a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease.
b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease.
Operating Lease
Finance Lease
b. Operating lease:
Date
Jan. 1, 2023
Account
To record the start of the operating lease.
Dec. 31, 2023
To record the lease payment.
Dec. 31, 2023
To record the lease expense.
Dec. 31, 2024
To record the lease payment.
Dec. 31, 2024
To record the lease expense.
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