Question
Scroll Right to see full spreadsheet. Write an analysis of the following information: Complete the following questions. In addition to answering the items below, you
Scroll Right to see full spreadsheet.
Write an analysis of the following information:
Complete the following questions. In addition to answering the items below, you must submit an analysis of the assignment. Analyze the specific outcomes and write an analysis directed toward the team at Coco Inc. describing what the numbers mean and how they relate to the business. Submit journal entries in an Excel file and written segments in an MS Word document. For written answers, please make sure your responses are well-written, formatted per CSU-Global Guide to Writing and APA and have proper citations, if applicable.
Assume that the following facts pertain to a non-cancelable lease agreement between Coco Inc. and Bubs, Corp, a Lessee.
The lessee assumes responsibility for all executory costs, which are expected to amount to $2,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line depreciation method for all equipment.
Using the spreadsheet, Lease Amort Schedule found in the link below, prepare an amortization schedule that would be suitable for the lessee for the lease term.
Using the spreadsheet Journal Entries, prepare the journal entries for the lessee for 2017 and 2018 to record the lease agreement and all expenses related to the lease. Assume the Lessees annual accounting period ends on December 31 and that reversing entries are used when appropriate.
Inception Date | January 1, 2017 | |||||
Residual Value of Equipment at End of Lease Term, Unguaranteed | $50,000 | |||||
Lease Term | 6 years | |||||
Economic Life of Leased Equipment | 8 years | |||||
Fair Value of Asset at January 1, 2017 | $400,000 | |||||
Lessor's Implicit Rate | 12% | |||||
Lessee's Incremental Borrowing Rate | 10% | |||||
Annual Executory Costs | $2,000 | |||||
Amount to be Recovered (Fair Value) | $400,000 | |||||
Present Value of Annuity Factor @ 10% n-6 years | 4.79 | |||||
Lease Payment at the Beginning of Each Year | $83,494 | |||||
Right-of-Use Asset & Lease Liability | $400,000 | |||||
Fair Value | $400,000 | |||||
Lease Term | 6 years | |||||
Estimated Useful Life | 8 years | |||||
Percentage | 75% | |||||
Jan 1, 17 | Lease Equipment | $400,000.00 | ||||
Lease Payable | $ 400,000.00 | |||||
To record lease | ||||||
Jan 1, 17 | Lease Payable | $ 81,365.00 | ||||
Cash | $ 81,365.00 | |||||
To record lease payment | ||||||
Jan 1, 17 | Prepaid Operating Expense | $ 2,000.00 | ||||
Cash | $ 2,000.00 | |||||
To record payment of executory costs | ||||||
Dec 31, 17 | Depreciation Expense | $ 58,333.00 | ||||
Accumulated Depreciation | $ 58,333.00 | |||||
To record depreciation | ||||||
Dec 31, 17 | Operating Expense | $ 2,000.00 | ||||
Prepaid Operating Expense | $ 2,000.00 | |||||
To record expenses paid for 2017 | ||||||
Dec 31, 18 | Interest Expense | $ 38,236.00 | ||||
Lease Payable | $ 43,129.00 | |||||
Prepaid Operating Expenses | $ 2,000.00 | |||||
Cash | $ 83,365.00 | |||||
To record interest expense and executory cost payments |
Bob Evans Farms - Lease Amortization Schedule | ||||||||
Date | Lease Payment | Interest Expense (12%) | Reduction of Lease Liability | Balance of Lease Liability | ||||
January 1 2017 | $ 400,000 | |||||||
January 1 2017 | $ 81,365 | $ 81,365 | $ 318,635 | |||||
January 1 2018 | $ 81,365 | $ 38,236 | $ 43,129 | $ 275,506 | ||||
January 1 2019 | $ 81,365 | $ 33,061 | $ 48,304 | $ 227,202 | ||||
January 1 2020 | $ 81,365 | $ 27,264 | $ 54,101 | $ 173,101 | ||||
January 1 2021 | $ 81,365 | $ 20,772 | $ 60,593 | $ 112,508 | ||||
January 1 2022 | $ 81,365 | $ 13,501 | $ 67,864 | $ 44,644 | ||||
January 1 2023 | $ 50,000 | $ 5,356 | $ 44,644 | $ 0 | ||||
December 31 2023 | $ 538,190 | $ 138,190 | $ 400,000 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started