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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

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.

Details of lease contract for land
Least term 15 years
Annual lease payment $525,000 due at each year end
Upfront fees $472,500 paid in cash
Cost of debt capital 9%
Lessee responsible for property tax and insurance

The company also leased computer equipment with the following details.

Details of lease contract for computer equipment
Least term 4 years
Annual lease payment $25,928.00
Upfront fees $5,250
Cost of debt capital 9%
Lessee has option to purchase equipment for $1 at end of lease

Note: Complete the entire question in Excel and format each answer to two decimal places. Then enter the answers into the provided spaces below with two decimal places.

a. Given the lease contract facts, determine the classification for each of the two leases (operating or finance).

b. Determine the amount of the lease liability that Alexander Mack will add to its balance sheet at the inception of each lease.

Amount of land lease liability:

Amount of computer equipment lease liability:

c. What asset will the company add to its balance sheet for each lease?

Asset name Amount of land asset
AnswerRight-of-use assetPPELease assetN/A Answer

Asset name Amount of computer equipment asset
AnswerRight-of-use assetPPELease assetN/A Answer

d. For each lease, prepare an amortization schedule that shows the interest and principal portions of each lease payment.

Land Lease: Implicit Interest Lease Amortization Lease Liability, End
Lease Liability, (Lease Liability, (Lease payment (Lease Liability, Start
Year Start Start x cost of debt) Implicit interest) Lease Amortization)
1 Answer Answer Answer Answer
2 Answer Answer Answer Answer
3 Answer Answer Answer Answer
4 Answer Answer Answer Answer
5 Answer Answer Answer Answer
6 Answer Answer Answer Answer
7 Answer Answer Answer Answer
8 Answer Answer Answer Answer
9 Answer Answer Answer Answer
10 Answer Answer Answer Answer
11 Answer Answer Answer Answer
12 Answer Answer Answer Answer
13 Answer Answer Answer Answer
14 Answer Answer Answer Answer
15 Answer Answer Answer Answer

Computer equipment lease: Implicit Interest Lease Amortization Lease Liability, End
Lease Liability, (Lease Liability, (Lease payment (Lease Liability, Start
Year Start Start x cost of debt) Implicit interest) Lease Amortization)
1 Answer Answer Answer Answer
2 Answer Answer Answer Answer
3 Answer Answer Answer Answer
4 Answer Answer Answer Answer

e. What will be the income statement effect of the land lease in 2020?

Income statement effect of land lease
Answer

f. What will be the income statement effect of the equipment lease in 2020?

Income statement effect of equipment lease
Answer

g. For fiscal 2020, what additional disclosure would Alexander Mack make in its footnotes pertaining to the remaining land lease payments?

December 2020
2021 Answer
2022 Answer
2023 Answer
2024 Answer
2025 Answer
Thereafter Answer
Total undiscounted lease payments
Imputed interest Answer
Total operating lease liability
Weighted average remaining lease life in years Answer
Weighted average discount rate Answer

h. On December 31, 2021, what amount will be on the balance sheet (asset and liability) for each of the leases?

Lease Asset Liability
Operating lease: Land Answer Answer
Finance lease: Computer equipment Answer Answer

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