Problem 9-105B

Capital and Operating Leases

Kleinfelder Company has decided to lease its new office building. The following information is available for the lease:

Lease:

Payments 75,000 per year*

Length of lease 15 years

Economic life of building 16 years

Appropriate interest rate 7.3%

Cost of building if purchased 750,000

*first payment is due at the end of the first year of lease.

Required:

Assume that this is a capital lease and that the present value of the lease payments is $740,000. Record the liability and corresponding asset for this acquisition.

Leased Assets ?

Lease liability ?

Record the interest expense on the capital lease at the end of the first year. Also assume no residual value and a 15-year lease for the building. Record the first year's straight-line depreciation of the cost of the leased asset. For a compound journal entry, if an amount box does not require an entry, leave it blank. If required, round your answers to the nearest whole dollar.

Interest Expense ? Blank

Lease liability ? Blank

Cash Blank ?

(record lease payment)

Depreciation expense ?

Accumulated depreciation ?

(record depreciation expense)