Question
Assume Notswift Company acquires a machine with a fair value of $182,000 on January 1 of Year 1 by signing a five-year lease. Notswift must
Assume Notswift Company acquires a machine with a fair value of $182,000 on January 1 of Year 1 by signing a five-year lease. Notswift must make payments of $50,489 each December 31. The appropriate interest rate on the lease is 12%. Round all computations to the nearest dollar.
a. Assuming that this is a capital lease and current GAAP applies, determine the following:
1. The lease asset balance at the end of Year 1.
2. The lease liability balance at the end of Year 1.
3. Total expense recognized for Year 1.
4. The lease asset balance at the end of Year 2.
5. The lease liability balance at the end of Year 2.
6. Total expense recognized for Year 2.
b. Assuming that this is an operating lease and current GAAP applies, determine the following:
1. The lease asset balance at the end of Year 1.
2. The lease liability balance at the end of Year 1.
3. Total expense recognized for Year 1.
4. The lease asset balance at the end of Year 2.
5. The lease liability balance at the end of Year 2.
6. Total expense recognized for Year 2.
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