Lease Accounting
Empire, Inc., leased a starship on January 2, 2009. Terms of the lease require annual payments
of $135,746 per year for 14 years. The interest rate on the lease is 10%, and the first
payment is due on December 31, 2009.
Required:
1. Compute the present value of the lease payments.
2. Assuming the lease qualifies as a capital lease, prepare the journal entry to record the lease.
3. Prepare the journal entry to record the first lease payment on December 31, 2009, and
to depreciate the leased asset. Empire, Inc., uses the straight-line method for depreciating
all long-term assets.
4. Interpretive Question: How would the leased asset, and its associated liability, be disclosed
on the balance sheet prepared on December 31, 2009?