Operating Lease On January 1, 2000, Timber Corporation agreed to lease a new logging truck for three
Question:
Operating Lease On January 1, 2000, Timber Corporation agreed to lease a new logging truck for three years at a cost of $30,000 per year, with payment to be made at the end of each year. Timber Corporation has determined the present value of the three payments, discounted at 8 percent, is equal to $77,313. Because the lease is for only three years and the expected economic life of the truck is 10 years, the lease is considered to be an operating lease.
a. What amount of lease expense will Timber Corporation report each period?
b. How will the lease be reflected in the accounting equation for Timber Corporation on January 1, 2000, if at all?
c. How would the effect on the accounting equation change if the lease were considered to be a capital lease?
Step by Step Answer:
Financial Accounting A Decision Making Approach
ISBN: 9780471328230
2nd Edition
Authors: Thomas E. King, Valdean C. Lembke, John H. Smith