p21-4

P21-4 (Balance Sheet and Income Statement Disclosure-Lessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. October 1, 2007 6 years 6 years $200,255 Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2007 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of 10% 10% each year, beginning with October 1, 2007 $41,800 The collectibility of the lease payments is reasonably predictable, and there are no important uncertain- ties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all ex ecutory costs, which amount to $5,500 per year and are to be paid each October 1, beginning October 1, 2007. (This $5,500 is not included in the rental payment of $41,800.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the les- see and as a direct-financing lease by the lessor