Leased Assets

Koffman and Sons signed a four-year lease for a forklift on January 1, 2014. Annual lease payments of $1,270, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2014.

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? _________________

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

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

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

Activity	_________________
Accounts	_________________
Statement(s)	_________________

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

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

b. Identify and analyze the effect of the first lease payment on December 31, 2014.

Activity	_________________
Accounts	_________________
Statement(s)	_________________

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

Assets

=

Liabilities

+

Stockholders' Equity

Revenues

Expenses

=

Net Income

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

_________________

c. Calculate the amount of depreciation expense for the year 2014. 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, 2014? Round answers to the nearest whole dollar.

Current liability portion	$ _________________
Long-term liability portion	$ _________________