Leasee Acounting Issues

Timmer company signs a lease agreement dated January 1,2013, that provides for it to lease equipment from Landau Company beginning January 1, 2013. The lease terms, provisions, and related eveans are as follows:

The lease is noncancleable and has a term of 5 years.

The annual rentals are $83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment.

Timmer agrees to pay all executory at the end of each year. In 2013, these were insurance, $3,760; property taxes, $5,440. In 2014: insurance,

$3,760; property taxes, $5,440. In 2014: Insurance, $3,100; property taxes, $5,330.

There is no renewal or bargain purchase option.

Timmer estimates that the equipment has a fair market value of $300,000, and ecomonic life of 5 years, and a zero residual value. Timmer's

incremental borrowing rate is 16%, it know the rate implicit in the lease, and it uses the strightline method to record depreciation on similiar

equipment.

1. Calculate the amount of the asset and liability of timmer at the inception of the lease. Round to the nearest dollar.

2. Prepare a table summerizing the lease payments and the interest expense. Enter all amounts as positive numbers. Round your answers to the

nearest cent. If an amount is zero,enter"0".

Timmer Company

Lease payments and Interest Expense Summary

2013-2017

Lease Interest Expense Reduction Balance

Payment at 12% on of Lease of Lease

Required Obligation Obigation Obligation

January 31, 2013

December 31, 2014

December 31,2015

December 31, 2016

December 31, 2017

3. Prepare journal entries on the books for 2013 and 2014.

If required, round your answer to the nearest cent. For compound entries, if an amount box does not require an entry, leave it blank.

2013 Jan 1 Leased Equipment

Record Lease Capital Lease Obligation

Dec 31 Capital Lease Obligation

Payment Interest Expense

Cash

Executory Costs Insurance Expense

Property Tax Expense

Cash

Depeceiation Depreciation Expense: Leased

Accumulated Depreciation: Le

2014 Dec 31 capital Lease Obligation

Payment Interest Expense

Cash

Dec. 31 Insurance Expense

Executory Costs Property Tax Expense

Cash

Depreciation Depreciation Expense: Leased

Accumulated Depreciation: Le

4. Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2013. Use the change in present value approach to classify the capital lease

obligation between current and noncurrent. If required, round your answers to the nearest cent.

Timmer Company

Balance Sheet (Partial)

December 31,2013

Assets

Property, plant, and equipment

Liabilities

Noncurrent capital lease obligation