The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. | | | | | | | | Commencement date | | | October 1, 2017 | | | | | Lease term | | | | 6 | years | | | | Economic life of leased equipment | | | 6 | years | | | | Fair value of asset at October 1, 2017 | | $313,043 | | | | | Book value of asset at October 1, 2017 | | $280,000 | | | $313,042.92 | | Residual value at end of lease term | | | - | | | | | Lessor's implicit rate | | | 8% | | | | | Lessee's incremental borrowing rate | | 8% | | | | | Annual lease payment due at the beginning of each year, beginning with October 1, 2017 | | | | | | $62,700 | | | | | | | | | | | | | | The collectability of the lease payments is probable by the lessor. 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 finance lease by the lessee and as a sales-type lease by the lessor. | | | | | | | | | | | | | Date | Lease Payment / Receipt | Interest (8%) on Unpaid Liability / Receivable | Reduction of Lease Liability / Receivable | Balance of Lease Liability / Receivable | | | | | | 10/01/17 | | | | $313,043 | | | | | | 10/01/17 | $62,700 | 0 | $62,700.00 | 250,343 | | | | | | 10/01/18 | $62,700 | $20,027 | $42,672.57 | 207,670 | | | | | | 10/01/19 | $62,700 | 16,614 | $46,086.37 | 161,584 | | | | | | 10/01/20 | $62,700 | 12,927 | $49,773.28 | 111,811 | | | | | | 10/01/21 | $62,700 | 8,945 | $53,755.14 | 58,056 | | | | | | 10/01/22 | $62,700 | 4,644 | $58,055.56 | 0 | | | | | | | $376,200 | $63,157 | $313,043 | | | | | | | | | | | | | | | | Amounts may differ due to rounding resulting from more precise calculations in Excel as compared to the solutions manual. | | | | | | | | |
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, 2017? | | | | | | | | | | Interest Expense | | | 5,007 | | | Amortization expense | | | 13,043 | | | | | | | | | | | | | | | | (2) | What items and amounts will appear on the lessee's balance sheet at December 31, 2017? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (3) | What items and amounts will appear on the lessee's income statement for the year ending December 31, 2018? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | (4) | What items and amounts will appear on the lessee's balance sheet at December 31, 2018? | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |