Question
(Statement of Financial Position and Income Statement Disclosure-Lessee) The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a
(Statement of Financial Position and Income Statement Disclosure-Lessee) The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a company system.
Inception dateOctober 1, 2010
Lease term6 years
Economic life of lease equipment6 years
Fair value of assets at October 1, 2010$300,383
Residual value at end of lease term -0-
Lessors implicit rate10%
Lessee's incremental borrowing rate10%
Annual lease payment due at the beginning of
Each year, beginning with October 1, 2010$62,700
The lessee assumes respo0nsibility for all executory costs, which amount to $5,500 per year are to be paid each October 1, beginning October 1, 2010. (This $5,500 is not included in the rental payment of $62,700.) 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 by7 both the lessor and the lessee in accounting for this lease, The lease is to be accounted for properly as a finance lease by the lessee and as a direct-financing lease by the lessor.
Date
Annual lease payment/Receipts
Interest 10% on unpaid liability/Receivable
Reduction of lease liability/ Receivable
Balance of lease liability/ Receivable
10/01/10
$300,383
10/01/10
$ 62,700
$62,700
237,683
10/01/11
62,700
$23,768
38,392
198,751
10/01/12
62,700
19,875
42,825
155,926
10/01/13
62,700
15,593
47,107
108,819
10/01/14
62,700
10,822
51,818
57,001
10/01/15
62,700
5,699
57,001
-0-
Total$376,200$375,817$300,383
Rounding error is $1.
Instructions:
(a)Assuming the lessee's accounting period ends on September 30, answer the following questions with respect to this lease agreement.
(1)What items and amount will appear on the lessee's income statement for the year ending September 30, 2011?
(2)What items and amount will appear on the lessee's statement of financial position at September 30, 2011?
(3)What items and amount will appear on the lessee's income statement for the year ending September 30, 2012?
(4)What items and amount will appear on the lessee's statement of financial position at September 30, 2012?
(b)Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to the lease agreement.
(1)What items and amount will appear on the lessor's income statement for the year ending September 30, 2011?
(2)What items and amount will appear on the lessor's statement of financial position at September 30, 2011?
(3)What items and amount will appear on the lessor's income statement for the year ending September 30, 2012?
(4)What items and amount will appear on the lessor's statement of financial position at September 30, 2012?
(c)Assuming the lessee's accounting period ends on December 31, answer the following questions with respect to the lease agreement.
(1)What items and amount will appear on the lessee's income statement for the year ending December 31, 2010?
(2)What items and amount will appear on the lessee's statement of financial position at December 31, 2010?
(3)What items and amount will appear on the lessee's income statement for the year ending December 31, 2011?
(4)What items and amount will appear on the lessee's statement of financial position at December 31, 2011?
(d)Assuming the lessor's accounting period ends on December 31, answer the following questions with respect to the lease agreement.
(1)What items and amount will appear on the lessor's income statement for the year ending December 31, 2010?
(2)What items and amount will appear on the lessor's statement of financial position at December 31, 2010?
(3)What items and amount will appear on the lessor's income statement for the year ending December 31, 2011?
(4)What items and amount will appear on the lessee's statement of financial position at December 31, 2011?
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