Task $1$

Blake County had the following agreements in $20$X$9.$ You have been asked to advise on the accounting treatment for each of these agreements. In the space provided, indicate whether each of these is $(1)$ a short$-$term lease, $(2)$ a lease, $(3)$ a financed purchase, $(4)$ a sale of an asset, or $(5)$ none of the above.

A B

Agreement Accounting treatment

$1.$ Blake County obtains the right to use equipment that has a market rental rate of $$24,000$ per year for five years for $$1$ per year.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

$2.$ Blake County enters into a $6-$month lease on July $1,20$X$9,$ that includes an option to extend the lease an additional $6$ months.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

$3.$ Blake County entered into a $12-$month lease with an option to renew the lease for $12$ months at a time up to $29$ times.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

$4.$ Blake County enters into a multiyear contract that conveys the exclusive right to use a building on weekends. Other parties use the building on the other days.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

$5.$ Blake County enters into a $20-$year contract on a building that transfers ownership to Blake County at the end of the contract period.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

$6.$ Blake County enters into a $20-$year contract on a building that transfers ownership to Blake County at the end of the contract period. The contract contains an option that allows Blake County to terminate the lease at the end of each year. It is likely that Blake County will exercise the option.

Short$-$term lease Lease Financed purchase Sale of an asset None of the above

Task $2$

Blake City enters into a lease contract to obtain equipment. The lease begins January $1,20$X$1,$ and is for noncancelable period of $36$ months. The city has an option to extend the lease for an additional $24$ months. The city is doubtful that it will exercise the option to extend the lease. At the end of the lease term $($either $36$ or $60$ months, depending on whether the option to extend is exercised$),$ the lease may be continued on a month$-$to$-$month basis for up to $12$ months, which either the city or the lessor can cancel. The monthly base rent is $$2,000$ per month, due on the first of each month, and includes $250$ machine$-$hours per month. There is $$10$ fee for each machine$-$hour over $250.$ In addition, the lease contract requires $$100$ per month payment for routine repairs and maintenance. The lease contract states an interest rate of $5\%.$ A separate contract for delivery and installation fee of $$1,391$ is due with the first lease payment. The city chooses to amortize the lease equipment on a straight$-$line basis.

Number of

Months

Present value interest

factors $$1$ annuity due

monthly basis using

$5\%$ annual rate

$2422\mathrm{.}8889$

$3633\mathrm{.}5047$

$3734\mathrm{.}3657$

$3835\mathrm{.}2231$

$3936\mathrm{.}0770$

$4036\mathrm{.}9273$

$4137\mathrm{.}7740$

$4238\mathrm{.}6173$

$4339\mathrm{.}4571$

$4440\mathrm{.}2933$

$4541\mathrm{.}1261$

$4641\mathrm{.}9555$

$4742\mathrm{.}7814$

$4843\mathrm{.}6039$

$4944\mathrm{.}4230$

$5045\mathrm{.}2386$

$5146\mathrm{.}0509$

$5246\mathrm{.}8598$

$5347\mathrm{.}6654$

$5448\mathrm{.}4676$

$5549\mathrm{.}2665$

$5650\mathrm{.}0621$

$5750\mathrm{.}8544$

$5851\mathrm{.}6433$

$5952\mathrm{.}4290$

$6053\mathrm{.}2115$

$6153\mathrm{.}9907$

$6254\mathrm{.}7667$

$6355\mathrm{.}5394$

$6456\mathrm{.}3090$

$6557\mathrm{.}0753$

$6657\mathrm{.}8385$

$6758\mathrm{.}5985$

$6859\mathrm{.}3554$

$6960\mathrm{.}1091$

$7060\mathrm{.}8597$

$7161\mathrm{.}6071$

$7262\mathrm{.}3515$

A B

Question Answer

$1.$ What is the lease term?

$36$ months $48$ months $60$ months $72$ months

$2.$ What is initial lease liability amount?

$$66,731$ $$67,009$ $$70,068$ $$70,360$

$3.$ What is the initial value of the lease asset?

$$67,009$ $$68,400$ $$70,360$ $$71,751$

$4.$ What is the amount of monthly amortization expense? Enter the amount in whole dollars without a $ or comma $($example: $1000$ rather than $$1,000$ or $1,000$ or $$1000).$