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Week 7 Homework

This document provides solutions to homework exercises from an accounting textbook. It includes journal entries, calculations, and schedules related to lease accounting. Key topics covered include classification of leases, accounting for capital leases, and accounting treatment at inception of a lease and over the lease term.

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Johan Bonilla
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69 views

Week 7 Homework

This document provides solutions to homework exercises from an accounting textbook. It includes journal entries, calculations, and schedules related to lease accounting. Key topics covered include classification of leases, accounting for capital leases, and accounting treatment at inception of a lease and over the lease term.

Uploaded by

Johan Bonilla
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Week7HomeworkSolutions

ExercisesE151,E153,E154,E155,E158

Exercise151
(a) Nath-Langstrom Services, Inc. (Lessee)
June 30, 2013
Rent expense...................................
Cash ............................................

10,000

December 31, 2013


Rent expense...................................
Cash ............................................

10,000

10,000

10,000

(b) ComputerWorld Corporation (Lessor)


June 30, 2013
Cash................................................
Rent revenue...............................

10,000

December 31, 2013


Cash................................................
Rent revenue...............................

10,000

10,000

10,000

Depreciation expense ($90,000 6 years) 15,000


Accumulated depreciation..........
15,000

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Exercise153

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Present Value of Minimum Lease Payments:


($15,000x7.47199*) = $112,080

lease
present
payments
value
*presentvalueofanannuitydueof$1:n=8,i=2%
[i=2%(8%4)becausethelease
callsforquarterlypayments]

Lease Amortization Schedule


Lease
Payments

1
2
3
4
5
6
7

15,000
15,000
15,000
15,000
15,000
15,000
15,000

Effective
Interest
2%xOutstandingBalance

.02
.02
.02
.02
.02
.02

(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)

=
=
=
=
=
=

Decrease
inBalance

1,942
1,680
1,414
1,142
865
582

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

15,000
13,058
13,320
13,586
13,858
14,135
14,418

Outstanding
Balance

112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705

15,000
120,000

.02 (14,705) =
295*
7,920

14,705
112,080

*adjustedforroundingofothernumbersintheschedule

January1,2013
Leasedequipment(calculatedabove).....................
Leasepayable(calculatedabove)........................
Leasepayable.....................................................
Cash(leasepayment)..........................................

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

112,080
112,080
15,000
15,000

Exercise153(concluded)
April1,2013
Interestexpense(2%x[$112,08015,000])..............
Leasepayable(difference).....................................
Cash(leasepayment)..........................................

1,942
13,058

July1,2013
Interestexpense(2%x$84,022:fromschedule)........
Leasepayable(difference).....................................
Cash(leasepayment)..........................................

1,680
13,320

October1,2013
Interestexpense(2%x$70,702:fromschedule)........
Leasepayable(difference).....................................
Cash(leasepayment)..........................................

1,414
13,586

December31,2013
Interestexpense(2%x$57,116:fromschedule)........
Interestpayable..............................................

1,142

Depreciationexpense($112,0802years)...............
Accumulateddepreciation...............................
January1,2014
Interestpayable(fromadjustingentry).......................
Leasepayable(difference).....................................
Cash(leasepayment)..........................................

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

15,000

15,000

15,000

1,142
56,040
56,040
1,142
13,858
15,000

Exercise154
Lease Amortization Schedule
Lease
Payments

1
2
3
4
5
6
7
8

15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
120,000

Effective
Interest
2%xOutstandingBalance

.02
.02
.02
.02
.02
.02
.02

(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
(14,705)

=
=
=
=
=
=
=

Decrease
inBalance

1,942
1,680
1,414
1,142
865
582

295*

15,000
13,058
13,320
13,586
13,858
14,135
14,418
14,705

7,920

112,080

Outstanding
Balance

112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705

*adjustedforroundingofothernumbersintheschedule

January1,2013
Leasereceivable(fairvalue)..................................
Inventoryofequipment(lessorscost)...............
Cash(leasepayment)..............................................
Leasereceivable.............................................
April1,2013
Cash(leasepayment)..............................................
Leasereceivable(difference)............................
Interestrevenue(2%x[$112,08015,000]).........
July1,2013
Cash(leasepayment)..............................................
Leasereceivable(difference).............................
Interestrevenue(2%x$84,022:fromschedule)....

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

112,080
112,080
15,000
15,000
15,000
13,058
1,942
15,000
13,320
1,680

Exercise154(concluded)
October1,2013
Cash(leasepayment)..............................................
Leasereceivable(difference).............................
Interestrevenue(2%x$70,702:fromschedule)....

15,000

December31,2013
Interestreceivable..............................................
Interestrevenue(2%x$57,116:fromschedule)....

1,142

January1,2014
Cash(leasepayment)..............................................
Leasereceivable(difference).............................
Interestreceivable(fromadjustingentry)............

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

13,586
1,414

1,142
15,000
13,858
1,142

Exercise155

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Requirement1

Lessors Calculation of Lease Payments


Amount to be recovered (fair value)
$112,080
__________________
Lease payments at the beginning
of each of eight quarters:
$15,000

($112,080 7.47199**)

**presentvalueofanannuitydueof$1:n=8,i=2%

Requirement2
January1,2013
Leasereceivable(fairvalue/presentvalue).............
Costofgoodssold(lessorscost)...........................
Salesrevenue(fairvalue/presentvalue).............
Inventoryofequipment(lessorscost)...............
Cash(leasepayment)..............................................
Leasereceivable.............................................
April1,2013
Cash(leasepayment)..............................................
Leasereceivable(difference).............................
Interestrevenue(2%x[$112,08015,000]).........

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

112,080
85,000
112,080
85,000
15,000
15,000

15,000
13,058
1,942

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Exercise158
1. Calculation of the present value of lease payments
$562,907 x 5.32948

$3,000,000

Present value of an annuity due of $1: n = 6, i =5%

(rounded)

2. Liability at December 31, 2013


Initial balance, June 30, 2013...................................
June 30, 2013, reduction..........................................
Dec. 31, 2013, reduction..........................................
December 31, 2013, net liability..............................

$3,000,000
(562,907)*
(441,052)**
$1,996,041

Asset at December 31, 2013


Initial balance, June 30, 2013...................................
Accumulated depreciation at Dec. 31, 2013............
December 31, 2013............................................

$3,000,000
(500,000)**
$2,500,000

3. Expenses for year ended December 31, 2013


June 30, 2013, interest expense................................
Dec. 31, 2013, interest expense................................
Interest expense for 2013.........................................

$
0*
121,855**
$121,855

Depreciation expense for 2013.................................


Total expenses........................................................

500,000
$621,855

Calculations:
June 30, 2013*
Leased equipment (calculated in req. 1)...........................
Lease payable (calculated in req. 1)..............................
Lease payable .................................................................
Cash (lease payment)....................................................
December 31, 2013**
Interest expense (5% x [$3 million 562,907]).................
Lease payable (difference)...............................................
Cash (lease payment)....................................................
Depreciation expense ($3 million 3 years x 1/2 year)..
Accumulated depreciation..........................................

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

3,000,000
3,000,000
562,907
562,907
121,855
441,052
562,907
500,000
500,000

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

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