12. (T/F) A lessee with a finance lease will report interest expense and depreciation expense on its
Question:
12. (T/F) A lessee with a finance lease will report interest expense and depreciation expense on its income statement.
13. Double BB Co. leases an equipment from Kitty Kat. The lease term is 5 years, which is equal to an estimated economic life. The lease is non-cancellable, requiring equal rental payment of 20,500 at the beginning of each year. Double BB does not guarantee residual value. The fair value of the leased equipment at the commencement of the lease is $100,000. The ownership of the leased equipment will be transferred at the end of the lease term. Double BB's incremental borrowing rate is 4%.
The following is the amortization schedule of the leased asset prepared by Double BB's accountant. Double BB depreciates its equipment on a straight-line basis. Date | Annual lease payment | Interest on Liability | Reduction of lease liability | Lease liability |
1/1/2022 | 94,913 | |||
1/1/2022 | 20,500 | - | 20,500 | 74,413 |
1/1/2023 | 20,500 | 2,977 | 17,523 | 56,889 |
1/1/2024 | 20,500 | 2,276 | 18,224 | 38,665 |
1/1/2025 | 20,500 | 1,547 | 18,953 | 19,712 |
1/1/2026 | 20,500 | 788 | 19,712 | - |
Depreciation expense reported on Income Statement for the year ended December 31, 2025 will be ?
14. Kitty Kat classifies the lease agreement with Double BB as finance lease (sales-type lease).
15. Kitty Kat records the journal entries to record interest revenue on December 31, 2023 by
a. Debit Cash 20,500 Credit Lease receivable 20,500
b. Debit Lease receivable 20,500 Credit Interest revenue 20,500
c. Debit Lease receivable 2,276 Credit Interest revenue 2,276
d. Debit Cash 20,500 Credit Lease receivable 18,224 Credit Interest revenue 2,276