Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 18, Problem 18.5MC
To determine
The correct option.
Given information:
Lease term is 4 years.
Lease rentals payable at the beginning of each year is $65,000.
Deferred indirect costs to lessor is $15,592.
Residual value is $50,000.
Fair value of underlying asset is $250,000.
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Determining the Implicit Rate in the Lease. Assume that you are given the following information for a
5-year lease (with payments due on January 1 of each year):
The lease payments are $60,000 per year.
• The fair value of the underlying asset is $500,000.
The deferred initial indirect costs of the lessor are equal to $25,000.
The lessor's estimated residual value in the underlying asset is $350,000.
What is the implicit rate in the lease?
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year:
Year 1:
$
18,500
Year 2:
$
23,500
Year 3:
$
28,500
Year 4:
$
33,500
An appropriate discount rate is 7 percentage, yielding a present value of $86,637.
b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset?
b-2. If the lease is a finance lease, what will be the initial value of the lease liability?
b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)
b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1? (Round your answer to the nearest dollar amount.)
b-5. If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year 1? (Round your answer to…
This active lease has installments that are not evenly distributed over the lease period. That the very first year's rent is $14,000, with a total payment of $120,000 throughout the five-year lease period. Interest expenditure for the first year is $6,000, based on the present value of the entire lease payments and the implicit interest rate. For the first year, the right-to-use asset should be amortised as follows:
$0
$8,000
$20,000
$24,000
Chapter 18 Solutions
Intermediate Accounting
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