Chapter 6, Problem 6.29P

To determine

Concept Introduction:

Lease: Lease is the contract between the Lessor (Owner) and the lessee (tenant) for renting an asset. The lease may be of two types as follows:

• Operating lease: An operating lease is a general rent agreement, which allows the lessee to use the assets for a particular period.

• Capital lease: Financial lease is the special lease contract, under which the lessee gets similar rights as of owners, and hence the lessee record the asset as an owner is his balance sheet.

Requirement-a:

To Indicate:

The reason for accounting this lease as Capital lease rather than Operating lease

To determine

Concept Introduction:

Lease: Lease is the contract between the Lessor (Owner) and the lessee (tenant) for renting an asset. The lease may be of two types as follows:

• Operating lease: An operating lease is a general rent agreement, which allows the lessee to use the assets for a particular period.

• Capital lease: Financial lease is the special lease contract, under which the lessee gets similar rights as of owners, and hence the lessee record the asset as an owner is his balance sheet.

Requirement-b:

To prepare:

The journal entry as on Jan 1, 2016

To determine

Concept Introduction:

Lease: Lease is the contract between the Lessor (Owner) and the lessee (tenant) for renting an asset. The lease may be of two types as follows:

• Operating lease: An operating lease is a general rent agreement, which allows the lessee to use the assets for a particular period.

• Capital lease: Financial lease is the special lease contract, under which the lessee gets similar rights as of owners, and hence the lessee record the asset as an owner is his balance sheet.

Requirement-c:

To prepare:

The journal entry as on Dec. 31, 2016 to record the first annual lease payment

To determine

Concept Introduction:

Lease: Lease is the contract between the Lessor (Owner) and the lessee (tenant) for renting an asset. The lease may be of two types as follows:

• Operating lease: An operating lease is a general rent agreement, which allows the lessee to use the assets for a particular period.

• Capital lease: Financial lease is the special lease contract, under which the lessee gets similar rights as of owners, and hence the lessee record the asset as an owner is his balance sheet.

Requirement-d:

To calculate:

The amount of interest expense to be recognized for the year ended Dec. 31, 2016

To determine

Concept Introduction:

Lease: Lease is the contract between the Lessor (Owner) and the lessee (tenant) for renting an asset. The lease may be of two types as follows:

• Operating lease: An operating lease is a general rent agreement, which allows the lessee to use the assets for a particular period.

• Capital lease: Financial lease is the special lease contract, under which the lessee gets similar rights as of owners, and hence the lessee record the asset as an owner is his balance sheet.

Requirement-e:

To Indicate:

The similarity between the accounting for capital lease and a long term loan