Question A. Cole Company leased office equipment from Bean Leasing on 1/1/Year1. The fair value of the equipment was $120,000, and it has an estimated useful life of 10 years. Bean earns 10% on leases of this type. Cole leased it for 6 years and made 6 annual payments of $18,400. The first payment was on 12/31/11 and the other payments occurred on December 31 of Year2 through Year6. The present value of Cole's lease payments at the 10% implicit rate is $80,137. (This is the annual lease payment of 18,400 x the factor for the PV of an ordinary annuity due factor. 1. Is this an operating lease or a financing lease? Check your answer in the quiz linked in this folder called "Lease Question A check." Use the correct classification for the remaining questions. 2. What journal entry will cole record to reflect the original lease payable obligation on 1/1/Yr1? 3. Complete the amortization table for the lease payable. Ignore any small rounding error at the end. 4. How much of the lease payment on 12/31/yri is labeled interest on the lease payable amortization schedule? 5. Related to this lease, how will Cole report as each of the following on the income statement for Year1? Hint: consider your answer to Question 1 as we have different reporting for the 2 types of leases. If the account title is not used on the income statement for this type of lease, answer N/A. You will have at least one N/A. a. Lease or rent expense b. Interest expense c. Amortization expense 6. What is the lease liability amount after the payment on 12/31/Yr1? 7. How will Cole report the lease liability on the balance sheet (as a regular liability or as a non-debt liability)? 8. What will cole report as a right-of use asset on the balance sheet at 12/31/Year1? 9. Does the lessor (Bean Leasing) remove the leased equipment from its assets when the lease is assigned? Answer just Yes or No. 10. If Bean (the Lessor) paid a legal fee in connection with executing the lease documents, how would the cost be treated. (Choose A. or B and you just need to type the letter A. Expense all of the cost in Year1 B. Expense evenly over 6 years. Question A. Cole Company leased office equipment from Bean Leasing on 1/1/Year1. The fair value of the equipment was $120,000, and it has an estimated useful life of 10 years. Bean earns 10% on leases of this type. Cole leased it for 6 years and made 6 annual payments of $18,400. The first payment was on 12/31/11 and the other payments occurred on December 31 of Year2 through Year6. The present value of Cole's lease payments at the 10% implicit rate is $80,137. (This is the annual lease payment of 18,400 x the factor for the PV of an ordinary annuity due factor. 1. Is this an operating lease or a financing lease? Check your answer in the quiz linked in this folder called "Lease Question A check." Use the correct classification for the remaining questions. 2. What journal entry will cole record to reflect the original lease payable obligation on 1/1/Yr1? 3. Complete the amortization table for the lease payable. Ignore any small rounding error at the end. 4. How much of the lease payment on 12/31/yri is labeled interest on the lease payable amortization schedule? 5. Related to this lease, how will Cole report as each of the following on the income statement for Year1? Hint: consider your answer to Question 1 as we have different reporting for the 2 types of leases. If the account title is not used on the income statement for this type of lease, answer N/A. You will have at least one N/A. a. Lease or rent expense b. Interest expense c. Amortization expense 6. What is the lease liability amount after the payment on 12/31/Yr1? 7. How will Cole report the lease liability on the balance sheet (as a regular liability or as a non-debt liability)? 8. What will cole report as a right-of use asset on the balance sheet at 12/31/Year1? 9. Does the lessor (Bean Leasing) remove the leased equipment from its assets when the lease is assigned? Answer just Yes or No. 10. If Bean (the Lessor) paid a legal fee in connection with executing the lease documents, how would the cost be treated. (Choose A. or B and you just need to type the letter A. Expense all of the cost in Year1 B. Expense evenly over 6 years
