The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.Commencement date ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?October 1, 2020Lease term...............................................................................6 yearsEconomic life of leased equipment......................................6 yearsFair value of asset at October 1, 2020..............................$313,043Book value of asset at October 1, 2020............................$280,000Residual value at end of lease term...........................................?0?Lessor?s implicit rate......................................................................8%Lessee?s incremental borrowing rate..........................................8%Annual lease payment due at the beginning of eachyear, beginning with October 1, 2020................................$62,700

The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor.

Instructions

a. Assuming the lessee?s accounting period ends on September 30, answer the following questions with respect to this lease agreement.

1. What items and amounts will appear on the lessee?s income statement for the year ending September 30, 2021?

2. What items and amounts will appear on the lessee?s balance sheet at September 30, 2021?

3. What items and amounts will appear on the lessee?s income statement for the year ending September 30, 2022?

4. What items and amounts will appear on the lessee?s balance sheet at September 30, 2022?

b. Assuming the lessee?s accounting period ends on December 31, answer the following questions with respect to this lease agreement.

1. What items and amounts will appear on the lessee?s income statement for the year ending December 31, 2020?

2. What items and amounts will appear on the lessee?s balance sheet at December 31, 2020?

3. What items and amounts will appear on the lessee?s income statement for the year ending December 31, 2021?

4. What items and amounts will appear on the lessee?s balance sheet at December 31, 2021?

Transcribed Image Text:

Interest (8%) Reduction of Lease Balance of Lease Payment/ Receipt on Unpaid Liability/ Receivable Lease Liability/Receivable $313,043 250,343 207,670 Date Liability/Receivable 10/01/20 $ 62,700 42,673 46,086 49,773 53,755 58,056 $313,043 $ 62,700 62,700 62,700 62,700 $20,027 16,614 12,927 8,945 4,644 10/01/21 10/01/22 10/01/23 161,584 111,811 58,056 -0- 10/01/24 10/01/25 62,700 62,700 $376,200 $63,157