Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Luc s, Inc, enters into a capital lease agreement as lessor on July 1, 2012, to lease an airplane gl Airlines. Lucas' year end is

image text in transcribed

Luc s, Inc, enters into a capital lease agreement as lessor on July 1, 2012, to lease an airplane gl Airlines. Lucas' year end is Decmber 31. The term of the noncancelable lease is relate cears and payments are required at on June 30 or each year. The following information 1. National Airlines has the option to purchase the airplane for $1,000,000 when the lease .he airplane has a cost of $51,000,000 to Lucas, an estimated useful life of fourteen years, to this agreement: expires at which time the fair value is expected to be $20,000,000 and a salvage value of zero at the end of that time (due to technological obsolescence) Straight line depreciation can be assumed. 3, Annual year-end lease payments of $8,780,736 allow Lucas to earn an 8% return on its investment, even though National does not know this and could borrow at a rate of 996 to 5. Collectibility of the payments is reasonably predictable, and there are no importan 6. The present value factor of an ordinary annuity for 8 years at 8% is 5.74664, the presen buy this airplane outright. uncertainties surrounding the costs yet to be incurred by Lucas. value factor of an annuity due for 8 years at 8% is 6.20637; the present value factor for single sum for 8 years at 8% is .5402. 7. The present value factor of an ordinary annuity for 8 years a 9% is 5.53482, the present valu factor of an annuity due for 8 years at 9% is 6.03295; the present value factor for a singl sum for 8 years at 9% is .50187 Instructions (c) Indicate why this is a capital lease. Which test is being met and show me the amount if applicable (d) Prepare the lease amortization schedule up to 6/30/14. fer Luca , (c) Prepare the journal entries on Lucas's books that relate to the lease agreement fort following dates: 1. July 1, 2012 2. December 31, 2012 3. June 30, 2013 4. December 31, 2013 IN the entries that the lessee would make on July 1, 2012 and December letting me know the amounts that go into these entries and EXPLAIN why these (d) EXPLA 31 amounts are different from the lessor's amounts IF that is the case USE NEXT PAGE FOR ANSWERS

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial and Managerial Accounting

Authors: Jonathan E. Duchac, James M. Reeve, Carl S. Warren

11th Edition

9780538480901, 9781111525774, 538480890, 538480904, 1111525773, 978-0538480895

More Books

Students also viewed these Accounting questions

Question

In your opinion, is mental illness currently overdiagnosed?

Answered: 1 week ago

Question

=+a. Can the reader find the most important message?

Answered: 1 week ago