Analyzing, Interpreting, and Capitalizing Operating Leases On January 1, 2020, Alexander Mack Adventures Inc. entered into land leases that grant unrestricted access to property in Texas where the company plans to build an RV resort. Lease details follow. Lease term: 15 years. Upfront fees: $450,000 paid in cash. Annual lease payment: $500,000 due at each year-end. Lessee responsible for property tax and insurance. The company also leased computer equipment with the following details. Lease term: 4 years. Upfront fees: $5,000. Annual lease payments: $24,693.80. Lessee has option to purchase equipment for $1 at end of lease. b. Determine the amount of the lease liability that Alexander Mack will add to its balance sheet at the inception of each lease. The company has a 9% cost of debt capital. Land lease: $ 0 : Computer equipment lease: $ 0 x C. What asset will the company add to its balance sheet for each lease? Land lease: Right-of-use asset Computer equipment lease: PPE $ $ OX 0 X d. For each lease, prepare an amortization schedule that shows the interest and principal portions of each lease payment. 0 X Land Lease: Implicit Interest Lease Amortization Lease Liability, End Lease Liability. (Lease Liability. (Lease payment - (Lease Liability, Start- Year Start Start x 9%) Implicit interest) Lease Amortization) 1 $ 0 * $ Ox $ Ox $ OX 2 OX OX OX 0X 3 0 x Ox OX 0 x 4. OX OX 0 x 5 OX 0 X OX OX 6 0 X OX OX 0X 7 0X 0X OX 0X 8 OX OX OX 0 x 9 OX 0 X OX OX 10 0X 0 x OX OX 11 OX OX OX 0 X 12 0 x OX 0X 13 0X 0X 0X 14 OX 0 X Ox 0 x 15 OX 0 X OX 0 Computer equipment lease: Implicit Interest Lease Amortization Lease Liability, End Lease Liability, (Lease Liability. (Lease payment - (Lease Liability, Start- Year Start Start x 9%) Implicit interest) Lease Amortization) 1 $ 0X $ 0 x $ 0 X $ OX 2 OX 0X 0X 0 X 3 OX OX OX OX 4 OX OX 0 e. What will be the income statement effect of the land lease in 2020? $ $ 0 x of expense f. What will be the income statement effect of the equipment lease in 2020? $ 0 x of expense g. For fiscal 2020, what additional disclosure would Alexander Mack make in its footnotes pertaining to the remaining land lease payment December 2020 2021 $ 0 x 2022 0 x 2023 0 x 2024 0 x 2025 0 x 0 x 0 X OX Thereafter Total undiscounted lease payments Imputed interest Total operating lease liability Weighted average remaining lease life in years Weighted average discount rate $ OX OX 0 % X h. On December 31, 2021, what amount will be on the balance sheet (asset and liability) for each of the leases? Asset Liabilities Land lease: $ 0 x $ 0 x Computer equipment lease: $ 0 x 0 x Analyzing, Interpreting, and Capitalizing Operating Leases On January 1, 2020, Alexander Mack Adventures Inc. entered into land leases that grant unrestricted access to property in Texas where the company plans to build an RV resort. Lease details follow. Lease term: 15 years. Upfront fees: $450,000 paid in cash. Annual lease payment: $500,000 due at each year-end. Lessee responsible for property tax and insurance. The company also leased computer equipment with the following details. Lease term: 4 years. Upfront fees: $5,000. Annual lease payments: $24,693.80. Lessee has option to purchase equipment for $1 at end of lease. b. Determine the amount of the lease liability that Alexander Mack will add to its balance sheet at the inception of each lease. The company has a 9% cost of debt capital. Land lease: $ 0 : Computer equipment lease: $ 0 x C. What asset will the company add to its balance sheet for each lease? Land lease: Right-of-use asset Computer equipment lease: PPE $ $ OX 0 X d. For each lease, prepare an amortization schedule that shows the interest and principal portions of each lease payment. 0 X Land Lease: Implicit Interest Lease Amortization Lease Liability, End Lease Liability. (Lease Liability. (Lease payment - (Lease Liability, Start- Year Start Start x 9%) Implicit interest) Lease Amortization) 1 $ 0 * $ Ox $ Ox $ OX 2 OX OX OX 0X 3 0 x Ox OX 0 x 4. OX OX 0 x 5 OX 0 X OX OX 6 0 X OX OX 0X 7 0X 0X OX 0X 8 OX OX OX 0 x 9 OX 0 X OX OX 10 0X 0 x OX OX 11 OX OX OX 0 X 12 0 x OX 0X 13 0X 0X 0X 14 OX 0 X Ox 0 x 15 OX 0 X OX 0 Computer equipment lease: Implicit Interest Lease Amortization Lease Liability, End Lease Liability, (Lease Liability. (Lease payment - (Lease Liability, Start- Year Start Start x 9%) Implicit interest) Lease Amortization) 1 $ 0X $ 0 x $ 0 X $ OX 2 OX 0X 0X 0 X 3 OX OX OX OX 4 OX OX 0 e. What will be the income statement effect of the land lease in 2020? $ $ 0 x of expense f. What will be the income statement effect of the equipment lease in 2020? $ 0 x of expense g. For fiscal 2020, what additional disclosure would Alexander Mack make in its footnotes pertaining to the remaining land lease payment December 2020 2021 $ 0 x 2022 0 x 2023 0 x 2024 0 x 2025 0 x 0 x 0 X OX Thereafter Total undiscounted lease payments Imputed interest Total operating lease liability Weighted average remaining lease life in years Weighted average discount rate $ OX OX 0 % X h. On December 31, 2021, what amount will be on the balance sheet (asset and liability) for each of the leases? Asset Liabilities Land lease: $ 0 x $ 0 x Computer equipment lease: $ 0 x 0 x
