Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Accounting for Leases On July 1, 2017, Shroff Company leased a warehouse building under a 10-year lease agreement. The lease requires quarterly lease payments of

Accounting for Leases

On July 1, 2017, Shroff Company leased a warehouse building under a 10-year lease agreement. The lease requires quarterly lease payments of $4,500. The first lease payment is due on September 30, 2017. The lease was reported as a capital lease using an 8% annual interest rate.

Required a. Prepare the journal entry to record the initial signing of the lease on July 1, 2017. (Use a financial calculator or Excel to compute. Round answer to the nearest whole number.)

Date Description Debit Credit
07/01/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

b. Prepare the journal entries that would be necessary on September 30 and December 31, 2017. (Use rounded answer from above for subsequent calculations. Round your answers to the nearest dollar.)

Date Description Debit Credit
09/30/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

To record depreciation expense.
09/30/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

Interest expense Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

To record lease payment.
12/31/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

To record depreciation expense.
12/31/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

Interest expense Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

To record lease payment.

c. Post the entries from parts a and b in their appropriate T-accounts.

Cash (A)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

Leased Asset (A)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

Accumulated Depreciation (XA)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

Lease Liability (L)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

Interest Expense (E)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

Depreciation Expense (E)
07/01/17 Answer

Answer

09/30/17 Answer

Answer

12/31/17 Answer

Answer

d. Prepare a financial statement effects template to show the effects of the entries from parts a and b on the balance sheet and income statement.

Balance Sheet
Transaction Cash Asset + Noncash Assets - Contra-Assets = Liabilities + Contrib. Capital + Earned Capital
7/1/17 Signed a capital lease $Answer

+ $Answer

- $Answer

= $Answer

+ $Answer

+ $Answer

9/30/17 Depreciation on leased asset Answer

+ Answer

- Answer

= Answer

+ Answer

+ Answer

9/30/17 Made quarterly lease payment Answer

+ Answer

- Answer

= Answer

+ Answer

+ Answer

12/31/17 Depreciation on leased asset Answer

+ Answer

- Answer

= Answer

+ Answer

+ Answer

12/31/17 Made quarterly lease payment Answer

+ Answer

- Answer

= Answer

+ Answer

+ Answer

Income Statement
Revenue - Expenses = Net Income
$Answer

- $Answer

= $Answer

Answer

- Answer

= Answer

Answer

- Answer

= Answer

Answer

- Answer

= Answer

Answer

- Answer

= Answer

e. Redo parts a and b assuming that the lease is reported as an operating lease. (If no entry is required, enter "No entry" for the debit and credit account name.)

Date Description Debit Credit
7/1/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

9/30/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

12/31/2017 AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

AnswerNo entryCashLeased assetAccumulated depreciationLease liabilityDepreciation expenseInterest expenseRent expense

Answer

Answer

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Activity Accounting An Activity-Based Costing Approach

Authors: James A. Brimson

1st Edition

0471196282, 978-0471196280

More Books

Students also viewed these Accounting questions

Question

Describe three forms of conflict from the work of Lewin.

Answered: 1 week ago