Question
Rogers Company signs a five year capital lease with Parker Company for office equiptment. Annual year-end lease payment is $10000 and the intrest rate is
Rogers Company signs a five year capital lease with Parker Company for office equiptment. Annual year-end lease payment is $10000 and the intrest rate is 8%.
1. Compute the present value of Rogers five-year lease payments.
2. Prepare the journal entry to record Rogers capital lease at its inception.
3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $39927. (hint: to find the amount allocated to intrest in 1 year, multiply the intrest rate by the beginning-of-year lease liablity. The amount of the annual lease payment not allocated to principle. Reduce the lease liability by the amount allocated to principle to update the lease liability at each year-end.)
Period Ending Date | Beginning balance of lease liability | Intrest on lease Liablilty | Reduction of lease Liability | Cash Lease Payment | Ending Balance of Lease Liability |
4. Use stright-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a 5 year life for the office equiptment.
5. Assume this is instead your first house and this is an amorization scheduel for your annual morgage payments you are buying a $250000 house at 4% intrest. (this is now a morage not a lease) You plan on paying off the house in 15 years and then turn it into a rental property. Recalculate the amounts. Then suppose you have 6 kids and inturn will not be able to pay off the house for 30 years. In all cases assume annual loan payments.
6.What is the difference in total intrest paid between the 15 and 30 year loans? In a paragraph explain why there is a difference between the total intrest amounts.
(Do in Excel)
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