Question
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
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.
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Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
