Leased Assets

Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,286, based on an interest rate of 12%, are to be made every December 31, beginning with December 31, 2017.

PV of Annuity of $1. REFER TO THE TABLE BELOW.

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? (YES/ NO)

What account will indicate that lease payments have been made? (CHOOSE ONE; BOTH THE INTEREST EXPENSE AND LEASE OBLIGATION ACCOUNTS/ INTEREST EXPENSE/ LEASE EXPENSE/ LEASE OBLIGATION)

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.

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.

Explain why the value of the leased asset is not recorded at $5,144 ($1,286 x 4). The leased asset should be reported at the present value of the payments which is $BLANK not at $BLANK

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

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.

TABLE 9-4 Present Value of Annuity of $1 (N) Periods 2% 3% 4% 5% 6% 7% 8% 10% 12% 15% 1 .93458 .92593 .86957 98039 1.94156 94340 1.83339 .95238 1.85941 2.72325 .89286 1.69005 2 1.80802 97087 1.91347 2.82861 3.71710 4.57971 1.78326 2.57710 3 .90909 1.73554 2.48685 3.16987 2.88388 2.62432 .96154 1.88609 2.77509 3.62990 4.45182 5.24214 2.40183 2.67301 3.46511 1.62571 2.28323 2.85498 3.35216 4 3.54595 3.38721 3.31213 3.03735 3.80773 4.71346 5 4.21236 4.10020 3.79076 3.60478 4.32948 5.07569 6 5.41719 4.35526 4.11141 4.76654 5.38929 7 6.23028 6.00205 4.86842 4.56376 8 5.60143 6.47199 7.32548 8.16224 8.98259 6.73274 5.78637 6.46321 7.10782 7.72173 4.91732 5.58238 6.20979 6.80169 7.36009 9 10 11 7.01969 7.78611 8.53020 9.25262 9.95400 10.63496 11.29607 7.43533 8.11090 8.76048 9.38507 9.98565 10.56312 11.11839 4.96764 5.32825 5.65022 5.93770 6.19437 6.42355 6.62817 12 13 3.99271 4.62288 5.20637 5.74664 6.24689 6.71008 7.13896 7.53608 7.90378 8.24424 8.55948 8.85137 9.12164 9.37189 14 9.78685 10.57534 11.34837 12.10625 12.84926 13.57771 14.29187 14.99203 15.67846 16.35143 7.88687 8.38384 8.85268 9.29498 9.71225 10.10590 10.47726 10.82760 15 6.81086 3.78448 4.16042 4.48732 4.77158 5.01877 5.23371 5.42062 5.58315 5.72448 5.84737 5.95423 6.04716 6.12797 6.19823 6.25933 6.35866 8.30641 8.86325 9.39357 9.89864 10.37966 10.83777 11.27407 11.68959 12.08532 12.46221 13.16300 13.79864 16 17 5.97130 6.51523 7.02358 7.49867 7.94269 8.35765 8.74547 9.10791 9.44665 9.76322 10.05909 10.33560 10.59401 11.06124 11.46933 11.82578 12.13711 11.93794 12.56110 13.16612 13.75351 14.32380 14.87747 15.93692 16.93554 11.65230 12.16567 12.65930 13.13394 13.59033 5.33493 5.75902 6.14457 6.49506 6.81369 7.10336 7.36669 7.60608 7.82371 8.02155 8.20141 8.36492 8.51356 8.77154 8.98474 9.16095 9.30657 9.42691 6.97399 7.11963 7.24967 18 19 11.15812 11.46992 7.36578 7.46944 20 22 7.64465 17.65805 18.91393 12.04158 12.55036 24 9.60360 9.81815 10.20074 10.52876 10.80998 11.05108 11.25778 6.43377 26 14.45112 15.24696 15.98277 16.66306 17.29203 20.12104 21.28127 22.39646 17.87684 18.76411 19.60044 28 14.37519 14.89813 15.37245 7.78432 7.89566 7.98442 8.05518 13.00317 13.40616 13.76483 6.49056 6.53351 6.56598 30 12.40904 Balance Sheet Income Statement Stockholders' Net Assets Liabilities + Equity Revenues Expenses Income No Entry X 0 No Entry X 0 No Entry No Entry Explain why the value of the leased asset is not recorded at $5,144 ($1,286 x 4). The leased asset should be reported at the present value of the payments which is $ not at $ 5,144 Balance Sheet Income Statement Stockholders' Net Assets Liabilities Equity Revenues Expenses Income No Entry X 0 X No Entry X 0 x 0 X No Entry No Entry X 0 x 0 Feedback Check My Work Partially correct c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar. d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar. Current liability portion Long-term liability portion TABLE 9-4 Present Value of Annuity of $1 (N) Periods 2% 3% 4% 5% 6% 7% 8% 10% 12% 15% 1 .93458 .92593 .86957 98039 1.94156 94340 1.83339 .95238 1.85941 2.72325 .89286 1.69005 2 1.80802 97087 1.91347 2.82861 3.71710 4.57971 1.78326 2.57710 3 .90909 1.73554 2.48685 3.16987 2.88388 2.62432 .96154 1.88609 2.77509 3.62990 4.45182 5.24214 2.40183 2.67301 3.46511 1.62571 2.28323 2.85498 3.35216 4 3.54595 3.38721 3.31213 3.03735 3.80773 4.71346 5 4.21236 4.10020 3.79076 3.60478 4.32948 5.07569 6 5.41719 4.35526 4.11141 4.76654 5.38929 7 6.23028 6.00205 4.86842 4.56376 8 5.60143 6.47199 7.32548 8.16224 8.98259 6.73274 5.78637 6.46321 7.10782 7.72173 4.91732 5.58238 6.20979 6.80169 7.36009 9 10 11 7.01969 7.78611 8.53020 9.25262 9.95400 10.63496 11.29607 7.43533 8.11090 8.76048 9.38507 9.98565 10.56312 11.11839 4.96764 5.32825 5.65022 5.93770 6.19437 6.42355 6.62817 12 13 3.99271 4.62288 5.20637 5.74664 6.24689 6.71008 7.13896 7.53608 7.90378 8.24424 8.55948 8.85137 9.12164 9.37189 14 9.78685 10.57534 11.34837 12.10625 12.84926 13.57771 14.29187 14.99203 15.67846 16.35143 7.88687 8.38384 8.85268 9.29498 9.71225 10.10590 10.47726 10.82760 15 6.81086 3.78448 4.16042 4.48732 4.77158 5.01877 5.23371 5.42062 5.58315 5.72448 5.84737 5.95423 6.04716 6.12797 6.19823 6.25933 6.35866 8.30641 8.86325 9.39357 9.89864 10.37966 10.83777 11.27407 11.68959 12.08532 12.46221 13.16300 13.79864 16 17 5.97130 6.51523 7.02358 7.49867 7.94269 8.35765 8.74547 9.10791 9.44665 9.76322 10.05909 10.33560 10.59401 11.06124 11.46933 11.82578 12.13711 11.93794 12.56110 13.16612 13.75351 14.32380 14.87747 15.93692 16.93554 11.65230 12.16567 12.65930 13.13394 13.59033 5.33493 5.75902 6.14457 6.49506 6.81369 7.10336 7.36669 7.60608 7.82371 8.02155 8.20141 8.36492 8.51356 8.77154 8.98474 9.16095 9.30657 9.42691 6.97399 7.11963 7.24967 18 19 11.15812 11.46992 7.36578 7.46944 20 22 7.64465 17.65805 18.91393 12.04158 12.55036 24 9.60360 9.81815 10.20074 10.52876 10.80998 11.05108 11.25778 6.43377 26 14.45112 15.24696 15.98277 16.66306 17.29203 20.12104 21.28127 22.39646 17.87684 18.76411 19.60044 28 14.37519 14.89813 15.37245 7.78432 7.89566 7.98442 8.05518 13.00317 13.40616 13.76483 6.49056 6.53351 6.56598 30 12.40904 Balance Sheet Income Statement Stockholders' Net Assets Liabilities + Equity Revenues Expenses Income No Entry X 0 No Entry X 0 No Entry No Entry Explain why the value of the leased asset is not recorded at $5,144 ($1,286 x 4). The leased asset should be reported at the present value of the payments which is $ not at $ 5,144 Balance Sheet Income Statement Stockholders' Net Assets Liabilities Equity Revenues Expenses Income No Entry X 0 X No Entry X 0 x 0 X No Entry No Entry X 0 x 0 Feedback Check My Work Partially correct c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar. d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar. Current liability portion Long-term liability portion