Lessor Accounting

At January 1, 2021, Caf Med leased restaurant equipment from Crescent Corporation under a nine- year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Both (a) the present value of the lease payments and (b) the present value of the residual value (i.e., the residual asset) are included in the lease receivable because the two amounts combine to allow the lessor to recover its net investment. Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be a finance lease to the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. What will be the effect of the lease on Crescent's earnings for the first year? (ignore taxes) (Enter decreases with negative sign.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? (ignore taxes) 1. Effect on earnings 2. Lease receivable balance (end of year) TABLE 6 Present Value of an Annuity Due of $1 (1+0)" PVAD = X (1+1) mi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0% 12.0% 20.0% 1 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 1.00000 2 1.99010 1.98522 1.98039 1.97561 1.97087 1.96618 1.96154 1.95694 1.94787 1.94340 1.93458 1.92593 1.91743 3 2.97040 2.95588 2.94156 2.92742 2.91347 2.89969 2.88609 2.87267 2.84632 2.83339 2.80802 2.78326 2.75911 1.95238 2.85941 3.72325 4.54595 1.90909 1.90090 1.89286 1.83333 2.73554 2.71252 2.69005 2.52778 3.48685 3.44371 3.40183 3.10648 4.16987 4.10245 4.03735 3.58873 4 3.94099 3.91220 3.88388 3.85602 3.82861 3.80164 3.77509 3.74896 3.69793 3.67301 3.62432 3.57710 3.53129 5 4.90197 4.85438 4.80773 4.76197 4.71710 4.67308 4.62990 4.58753 4.50515 4.46511 4.38721 4.31213 4.23972 6 5.85343 5.78264 5.71346 5.64583 5.57971 5.51505 5.45182 5.38998 5.32948 5.27028 5.21236 5.10020 4.99271 4.88965 4.79079 4.69590 4.60478 3.99061 7 6.79548 6.69719 6.60143 6.50813 6.41719 6.32855 6.24214 6.15787 6.07569 5.99553 5.91732 5.76654 5.62288 5.48592 5.35526 5.23054 5.11141 4.32551 8 7.59821 7.47199 7.34939 7.23028 7.11454 7.00205 6.89270 6.78637 6.68297 6.58238 6.38929 6.20637 6.03295 7.72819 8.65168 5.86842 5.71220 5.56376 4.60459 6.33493 6.14612 5.96764 4.83716 9 8.48593 8 32548 8.17014 8.01969 7.59589 7.46321 733457 7.20979 6.97130 6.74664 6.53482 7.87396 8.60769 7.73274 8.43533 10 9.56602 9.36052 9.16224 8.97087 8.78611 8.26879 8.10782 7.95220 7.80169 7.51523 7.24689 6.99525 6.75902 6.53705 6.32825 5.03097 11 10.47130 10.22218 8.72173 8.53763 8.36009 8.02358 7.71008 7.41766 12 11.36763 11.07112 9.98259 9.75206 9.53020 9.31661 9.11090 8.91272 10.78685 10.51421 10.25262 10.00155 9.76048 9.52892 11.57534 11.25776 10.95400 10.66333 10.38507 10.38507 10.11858 9.30641 9.09254 8.88687 8.49867 8.13896 7.80519 7.14457 6.88923 6.65022 5.19247 7.49506 7.20652 6.93770 5.32706 7.81369 7.49236 7.19437 5.43922 13 12.25508 11.90751 9.86325 9.61852 9.38384 8.94269 8.53608 8.16073 14 13.13374 12.73153 12.34837 11.98318 11.63496 11.30274 10.98565 10.68285 10.39357 10.11708 9.85268 9.35765 8.90378 8.48690 8.10336 7.74987 7.42355 5.53268 15 14.00370 13.54338 13.10625 12.69091 12.29607 12.29607 11.92052 11.56312 11.22283 10.89864 10.58965 10.29498 9.74547 9.24424 8.78615 8.36669 7.98187 7.62817 5.61057 9.06069 9.31256 16 14.86505 14.34323 13.84926 13.38138 12.93794 12.51741 12.11839 11.73955 11.37966 11.03758 10.71225 10.10791 9.55948 17 15.71787 15.13126 14.57771 14.05500 13.56110 13.09412 12.65230 12.65230 12.23402 11.83777 11.46216 11.10590 10.44665 9.85137 18 16.56225 15.90765 15.29187 14.71220 14.16612 13.65132 13.16567 12.70719 12.27407 11.86461 11.47726 10.76322 10.12164 19 17.39827 16.67256 15.99203 15.35336 14.75351 14.18968 13.65930 13.15999 12.68959 12.24607 11.82760 11.05909 10.37189 20 18.22601 17.42617 17.42617 16.67846 15.97889 15.32380 14.70984 14.13394 13.59329 13.08532 12.60765 12.15812 11.33560 10.60360 9.54363 8.60608 8.19087 7.81086 5.67547 8.82371 8.37916 7.97399 5.72956 9.02155 8.54879 8.11963 5.77463 9.20141 8.70162 8.24967 5.81219 9.36492 8.83929 8.36578 5.84350 9.75563 9.95011 21 19.04555 18.16864 17.35143 16.58916 15.87747 15.21240 14.59033 14.00794 13.46221 12.95038 12.46992 11.59401 10.81815 10.12855 9.51356 8.96333 8.46944 5.86958 14.79864 14.15170 13.55036 12.46933 11.52876 10.70661 9.98474 9.34814 8.78432 5.93710 25 22.24339 21.03041 30 26.06579 24.37608 19.91393 18.88499 17.93554 17.05837 22.84438 21.45355 20.18845 19.03577 16.24696 15.49548 17.98371 17.02189 20.58448 19.22966 16.14107 15.33310 14.59072 13.27767 12.15841 11.19828 10.36961 9.65011 9.02181 5.97472 40 33.16303 30.36458 27.90259 25.73034 23.80822 22.10250 18.01704 16.92866 15.94907 14.26493 12.87858 11.72552 10.75696 9.93567 9.23303 5.99592