Leased Assets

Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,485, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017.

PV of Annuity of $1

Required:

Refer to the table above for present value factors.

1. Assume that the lease is treated as an operating lease.

a. Will the value of the forklift appear on Koffman's balance sheet? No

b. What account will indicate that lease payments have been made? Lease expense

2. Assume that the lease is treated as a capital lease or finance lease.

a. Identify and analyze the effect when the lease is signed.

Activity	Investing and Financing
Accounts	Leased Asset Increase, Lease Obligation Increase
Statement(s)	Balance Sheet only

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Leased Asset

5,146

Lease Obligation

5,146

No Entry

309

Explain why the value of the leased asset is not recorded at $5,940 ($1,485 x 4). The leased asset should be reported at the present value of the payments which is $5,146 not at $5,940

b. Identify and analyze the effect of the first lease payment on December 31, 2017.

Activity	Operating and Financing
Accounts	Cash Decrease, Lease Obligation Decrease, Interest Expense Increase
Statement(s)	Balance Sheet and Income Statement

How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

Expenses

=

Income

Cash

?

Lease Obligation

?

?

No Entry

Interest Expense

?

?

Year	Lease Payment	PVF @ 6%	PV
1	$ 1,485	0.9434	$ 1,401
2	$ 1,485	0.8900	$ 1,322
3	$ 1,485	0.8396	$ 1,247
4	$ 1,485	0.7921	$ 1,176
			$ 5,146

Lease Schedule

Year	Op. Value	Finance Cost	Lease Payment	Cl. Value
1	$ 5,146	$ 309	$ -1,485	$ 3,969
2	$ 3,969	$ 238	$ -1,485	$ 2,723
3	$ 2,723	$ 163	$ -1,485	$ 1,401
4	$ 1,401	$ 84	$ -1,485	$ -0
			$ -5,940

on 2

Please help with question marks on 2-b , thank you.