The following facts pertain to a noncancelable lease agreement between Waterway Leasing Company and McKee Electronics, a lessee, for a computer system.
October 1, 2017 Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2017 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of 6 years 6 years $345,149 -0 11% 11% each year, beginning with October 1, 2017 $73,500 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $4,200 per year and are to be paid each October 1, beginning October 1, 2017. (This $4,200 is not included in the rental payment of $73,500.) 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 by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Annual Lease Interest (11%) on Unpaid Reduction of Lease Balance of Lease 10/01/17 10/01/17 10/01/18 10/01/19 10/01/20 10/01/21 10/01/22 Date Payment/Receipt Liability/Receivable Liability/Receivable Liability/Receivable $345,149 271,649 228,030 179,613 125,870 66,216 $73,500 73,500 73,500 73,500 73,500 73,500 $441,000 $29,881 25,083 19,757 13,846 7,284 $95,851 $73,500 43,619 48,417 53,743 59,654 66,216 $345,149 -0 Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2018? (2) What items and amounts will appear on the lessor's balance sheet at September 30, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2019? (4) What items and amounts will appear on the lessor's balance sheet at September 30, 2019? Balance Sheet (Partial) Current Assets Noncurrent Assets Assuming the lessor's accounting period ends on December 31, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2017? (2) What items and amounts will appear on the lessor's balance sheet at December 31, 2017? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? (4) What items and amounts will appear on the lessor's balance sheet at December 31, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets Click if you would like to Show Work for this question: Open Show Work October 1, 2017 Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2017 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of 6 years 6 years $345,149 -0 11% 11% each year, beginning with October 1, 2017 $73,500 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $4,200 per year and are to be paid each October 1, beginning October 1, 2017. (This $4,200 is not included in the rental payment of $73,500.) 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 by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Annual Lease Interest (11%) on Unpaid Reduction of Lease Balance of Lease 10/01/17 10/01/17 10/01/18 10/01/19 10/01/20 10/01/21 10/01/22 Date Payment/Receipt Liability/Receivable Liability/Receivable Liability/Receivable $345,149 271,649 228,030 179,613 125,870 66,216 $73,500 73,500 73,500 73,500 73,500 73,500 $441,000 $29,881 25,083 19,757 13,846 7,284 $95,851 $73,500 43,619 48,417 53,743 59,654 66,216 $345,149 -0 Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2018? (2) What items and amounts will appear on the lessor's balance sheet at September 30, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2019? (4) What items and amounts will appear on the lessor's balance sheet at September 30, 2019? Balance Sheet (Partial) Current Assets Noncurrent Assets Assuming the lessor's accounting period ends on December 31, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2017? (2) What items and amounts will appear on the lessor's balance sheet at December 31, 2017? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? (4) What items and amounts will appear on the lessor's balance sheet at December 31, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets Click if you would like to Show Work for this question: Open Show Work
