The following facts pertain to a noncancelable lease agreement between Mark-I Leasing Company and Hobart

Electronics, a lessee, for a computer system.

Inception date October 1, 2014

Lease term 6 years

Economic life of leased equipment 6 years

Fair value of asset at October 1, 2014 Rs.300,383

Residual value at end of lease term -0-

Lessor's implicit rate 10%

Lessee's incremental borrowing rate 10%

Annual lease payment due at the beginning of each year,

beginning with October 1, 2014 Rs.62,700

The collectability 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

Rs.5,500 per year and are to be paid each October 1, beginning October 1, 2014. (This Rs.5,500 is not included in the rental

payment of Rs.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 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.

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 amounts will appear on the lessee's income statement for the year ending September 30, 2015?

(2) What items and amounts will appear on the lessee's balance sheet at September 30, 2015?

(3) What items and amounts will appear on the lessee's income statement for the year ending September 30, 2016?

(4) What items and amounts will appear on the lessee's balance sheet at September 30, 2016?

(b) Assuming the lessee's accounting period ends on December 31, answer the following questions with respect to this

lease agreement.

(1) What items and amounts will appear on the lessee's income statement for the year ending December 31, 2014?

(2) What items and amounts will appear on the lessee's balance sheet at December 31, 2014?

(3) What items and amounts will appear on the lessee's income statement for the year ending December 31, 2015?

(4) What items and amounts will appear on the lessee's balance sheet at December 31, 2015?

Annual lease Interest (10%) on Unpaid Reduction of Balance of 26 Date: Payment / Liability / Lease Liability / Lease Liability / Receipt: Receivable: Receivable: Receivable: 27 10/01/10 300, 383.00 28 10/01/10 62, 700.00 62, 700.00 237,683.00 29 10/01/11 62,700.00 23, 768.30 38,931.70 198, 751.30 30 10/01/12 62, 700.00 19,875. 13 42,824.87 155,926.43 31 10/01/13 62, 700.00 15,592.64 47, 107.36 108,819.07 32 10/01/14 62, 700.00 10,881.91 51,818.09 57,000.98 33 10/01/15 62,700.00 5,699.02 57,000.98 0.00 34 376,200.00 75, 817.00 300, 383.00 35