Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Commencement date October

The following facts pertain to a non-cancelable 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
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 - $ 62,700 250,343
10/01/18 62,700 $ 20,027 42,673 207,670
10/01/19 62,700 $ 16,614 46,086 161,584
10/01/20 62,700 $ 12,927 49,773 111,811
10/01/21 62,700 $ 8,945 53,755 58,056
10/01/22 62,700 4,644 58,056 0
$ 376,200 $ 63,157 $ 313,043

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, 2018?

2. What items and amounts will appear on the lessee's balance sheet at September 30, 2018?

3. What items and amounts will appear on the lessee's income statement for the year ending September 30, 2019?

4. What items and amounts will appear on the lessee's balance sheet at September 30, 2019?

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, 2017?

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?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services

Authors: Alvin A. Arens, Randal J. Elder, Mark S. Beasley, Chris E. Hogan

16th Global Edition

1292147989, 978-1292147987

More Books

Students also viewed these Accounting questions