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Problem 21-4 The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2014 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of October 1, 2014 6 years 6 years $265,318 11% 11% each year, beginning with October 1, 2014 $56,500 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 $5,100 per year and are to be paid each October 1, beginning October 1, 2014. (This 5,100 is not included in the rental payment of $56,500.) 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 Payment/Recei Interest (11%) on unpaid Reduction of Lease Balance of Lease Liability/Receivable Liability/Receivable Liability/Receivable $265,318 208,818 175,288 138,070 96,758 50,901 10/01/14 10/01/14 10/01/15 10/01/16 10/01/17 10/01/18 10/01/19 $56,500 33,530 37,218 41,312 45,857 50,901 $265,318 $56,500 56,500 56,500 56,500 56,500 56,500 $22,970 19,282 15,188 10,643 5,599 (a) Assuming the lessee'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 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? Balance Sheet (Partial) September 30, 2015 Current Liabilities Long-term Liabilities Property, Plant and Equipment (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? Balance Sheet (Partial) September 30, 2016 Current Liabilities Long-term Liabilities Property, Plant and Equipment (b) Assuming the lessee's accounting period ends on December 31, answer the following questions with respect to this lease agreement. (Round answers to o decimal places e.g. 58,971.) 9- (1) What items and amounts will appear on the lessee's income statement for the year ending December 31, 2014? (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? Balance Sheet (Partial) December 31, 2014 Current Liabilities Long-term Liabilities Property, Plant and Equipment Current Assets (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? Balance Sheet (Partial) December 31, 2015 Current Liabilities Long-term Liabilities Property, Plant and Equipment Current Assets
