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: $$450,000$ 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: $$22,224.$

Lessee has option to purchase equipment for $$1$ at end of lease.

Required

Note: For the following questions, round your answers to the nearest whole dollar; use rounded amounts for further calculations.

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

Land lease: Answer

Operating lease

Computer equipment lease: Answer

Finance 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: $Answer

$0$

Computer equipment lease: $Answer

$0$

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

Land lease: Answer

Right$-$of$-$use asset

Answer

$0$

Computer equipment lease: Answer

PPE

Answer

$0$

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

Note: Adjust the final year for any rounding differences.

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$)$

$1$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$2$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$3$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$4$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$5$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$6$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$7$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$8$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$9$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$10$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$11$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$12$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$13$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$14$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$15$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

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$)$

$1$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$2$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$3$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

$4$ Answer

$0$

Answer

$0$

Answer

$0$

Answer

$0$

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

$Answer

$0$

of expense

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

$Answer

$0$

of expense

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

$0$

$2022$ Answer

$0$

$2023$ Answer

$0$

$2024$ Answer

$0$

$2025$ Answer

$0$

Thereafter Answer

$0$

Total undiscounted lease payments Answer

$0$

Imputed interest Answer

$0$

Total operating lease liability Answer

$0$

Weighted average remaining lease life in years Answer

$0$

Weighted average discount rate Answer

$0$

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: Answer

$0$

Answer

$0$

Computer equipment lease: Answer

$0$

Answer

$0$