On January 1, 20X1, Overseas Leasing Inc. (the lessor) purchased five used oil tankers from Seven Seas Shipping Company at a price of $99,817,750. Overseas immediately leased the oil tankers to Pacific Ocean Oil Company (the lessee) on the same date. The lease calls for five annual payments of $25,000,000 to be made at each year-end. The tankers have a remaining useful life of five years with no salvage value, and the lease does not require the lessee to guarantee any residual value for the tankers. The lessor has structured the lease to earn a rate of return of 8.0%.

Required:

Prepare a schedule similar to Exhibit 13.13. This schedule should contain the year-to-year income statement and balance sheet differences that would arise depending on whether this lease is accounted for as a sales-type lease or as an operating lease.

Exhibit 13.13.

Transcribed Image Text:

Dunaway, Inc.: Operating Lease Method versus Sales-Type Method (No Manufacturing Profit) Income and Asset Balance Comparison Net Asset Balance at End of Year Operating Lease Method (a) Lease (c) Operating Lease Method (d) Sales-Type (f) Income Difference Operating Sales-Type Method! (h) Asset Balance (e) (g) Payment Received Depreciation (b) Method Difference Year Income Income' between Methods Method between Methods 20X1 $ 79,139. 18 $ 58,483.68 $ 20,655.50 20,655.50 20,655.50 $ 31,241.84 26,452.11 21,183.40 $ 10,586.34 5,796.61 527.90 $253,934.72 $264,521.06 195,451.04 211,833.99 136,967.36 153,878.21 $10,586.34 16,382.95 16,910.85 20X2 79,139. 18 79,139. 18 58,483.68 20X3 58,483.68 15,387.82 9,012.33** (5,267.68) (11,643.17) 0.00 20X4 79,139. 18 79,139. 18 58,483.68 58,483.68 20,655.50 20,655.50 78,483.68 90, 126.85 20,000.00 11,643.17 $ 20X5 20,000.00 0.00 $395,695.90 $ 292,418.40 $103.277.50 $103,277.50 * Column (a) minus Column (b). * From Column (b) of Exhibit 13.12. * $312,418.40 minus the period-to-date cumulative depreciation amount from Column (b). * From Column (d) of Exhibit 13.12. **Rounded as in Exhibit 13.12.