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(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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