Find more slides, ebooks, solution manual and testbank on www.downloadslide.

com

Exercise 154
Lease Amortization Schedule
Lease
Payments

1
2
3
4
5
6
7
8

15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000

Effective
Interest
2% x Outstanding Balance

.02
.02
.02
.02
.02
.02
.02

120,000

(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
(14,705)

=
=
=
=
=
=
=

Decrease
in Balance

Outstanding
Balance

1,942
1,680
1,414
1,142
865
582
295*

15,000
13,058
13,320
13,586
13,858
14,135
14,418
14,705

112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705
0

7,920

112,080

* Adjusted for rounding of other numbers in the schedule.

January 1, 2013
Lease receivable (fair value) .................................
Inventory of equipment (lessors cost) ..............
Cash (lease payment) .............................................
Lease receivable ............................................
April 1, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ...........................
Interest revenue (2% x [$112,080 15,000]) .........
July 1, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x $84,022: from schedule) ....

Solutions Manual, Vol.2, Chapter 15

112,080
112,080
15,000
15,000
15,000
13,058
1,942
15,000
13,320
1,680

The McGraw-Hill Companies, Inc., 2013

1541

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 154 (concluded)

October 1, 2013
Cash (lease payment) ..............................................
Lease receivable (difference) .............................
Interest revenue (2% x $70,702: from schedule) ....

15,000

December 31, 2013

Interest receivable ..............................................
Interest revenue (2% x $57,116: from schedule) ....

1,142

January 1, 2014
Cash (lease payment) ..............................................
Lease receivable (difference) .............................
Interest receivable (from adjusting entry) ............

The McGraw-Hill Companies, Inc., 2013

1542

13,586
1,414

1,142
15,000
13,858
1,142

Intermediate Accounting, 7e

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 155
Requirement 1
Lessors Calculation of Lease Payments
Amount to be recovered (fair value)
Lease payments at the beginning
of each of eight quarters:

$112,080
__________________
($112,080 7.47199**)

$15,000

** Present value of an annuity due of $1: n = 8, i = 2%

Requirement 2
January 1, 2013
Lease receivable (fair value / present value) ............
Cost of goods sold (lessors cost) ..........................
Sales revenue (fair value / present value) ............
Inventory of equipment (lessors cost) ..............
Cash (lease payment) .............................................
Lease receivable ............................................
April 1, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x [$112,080 15,000]) .........

Solutions Manual, Vol.2, Chapter 15

112,080
85,000
112,080
85,000
15,000
15,000

15,000
13,058
1,942

The McGraw-Hill Companies, Inc., 2013

1543

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1512
Situation 1
(a)

$600,000

6.53705** =

$91,785

fair
lease
value
payments
** Present value of an annuity due of $1: n = 10, i = 11%

(b)

$91,785

x 6.53705** =

$600,000

(rounded)

lease
leased asset/
payments
lease liability
** Present value of an annuity due of $1: n = 10, i = 11%

Situation 2
(a)

$980,000

9.95011** =

$98,491

fair
lease
value
payments
** Present value of an annuity due of $1: n = 20, i = 9%

(b)

$98,491

x 9.95011** =

$980,000

(rounded)

lease
leased asset/
payments
lease liability
** Present value of an annuity due of $1: n = 20, i = 9%

Situation 3
(a)

$185,000

3.40183** =

$54,382

fair
lease
value
payments
** Present value of an annuity due of $1: n = 4, i = 12%

(b)

$54,382

x 3.44371** =

$187,276

lease
leased asset/
payments
lease liability
** Present value of an annuity due of $1: n = 4, i = 11%

But since this amount exceeds the assets fair value, the
lessee must capitalize the $185,000 fair value instead.
The McGraw-Hill Companies, Inc., 2013
1554

Intermediate Accounting, 7e

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1514
Situation 1
Amount to be recovered (fair value)

$50,000
___________________

Lease payments at the beginning

($50,000 3.48685**)
of each of the next 4 years:

$ 14,340

** Present value of an annuity due of $1: n = 4, i = 10%

Situation 2
Amount to be recovered (fair value)

$350,000

Less: Present value of the residual value ($50,000 x .48166*)

(24,083)

Amount to be recovered through periodic lease payments

$325,917
_______________________
Lease payments at the beginning
$ 62,310
of each of the next 7 years: ($325,917 5.23054**)
* Present value of $1: n = 7, i = 11%
** Present value of an annuity due of $1: n = 7, i = 11%

The McGraw-Hill Companies, Inc., 2013

1556

Intermediate Accounting, 7e

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1514 (concluded)

Situation 3
Amount to be recovered (fair value)

$75,000

Less: Present value of the residual value ($7,000 x .64993*)

(4,550)

Amount to be recovered through periodic lease payments

$70,450
______________________
Lease payments at the beginning
($70,450 4.23972**)
$ 16,617
of each of the next 5 years:
* Present value of $1: n = 5, i = 9%
** Present value of an annuity due of $1: n = 5, i = 9%

Situation 4
Amount to be recovered (fair value)

$465,000

Less: Present value of the residual value ($45,000 x .40388*)

(18,175)

Amount to be recovered through periodic lease payments

$446,825
______________________
Lease payments at the beginning
($446,825 5.56376**)
$ 80,310
of each of the next 8 years:
* Present value of $1: n = 8, i = 12%
** Present value of an annuity due of $1: n = 8, i = 12%

Solutions Manual, Vol.2, Chapter 15

The McGraw-Hill Companies, Inc., 2013

1557

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1519
Requirement 1
January 1, 2013
Brand Services (Lessee)
Leased equipment (present value of lease payments) ............
Lease payable (present value of lease payments) ..............
Lease payable (payment less executory costs) ......................
Maintenance expense (2013 fee) .............................................
Cash (annual payment) ...................................................
NRC Credit (Lessor)
Lease receivable (present value of lease payments) ..............
Inventory of equipment (lessors cost) ..........................
Cash (annual payment) .......................................................
Maintenance fee payable [or cash] .............................
Lease receivable ........................................................

316,412
316,412
50,000
5,000
55,000
316,412
316,412
55,000
5,000
50,000

Requirement 2
December 31, 2013
Brand Services (Lessee)
Interest expense (12% x [$316,412 50,000]) .........................
Lease payable (difference) ................................................
Prepaid maintenance (2014 fee)...............................................
Cash (lease payment) .....................................................
Depreciation expense ($316,412 10 years) ..........................
Accumulated depreciation ..........................................
NRC Credit (Lessor)
Cash (lease payment) .........................................................
Lease receivable (difference) ........................................
Maintenance fee payable [or cash] .............................
Interest revenue (12% x [$316,412 50,000]) .....................

Solutions Manual, Vol.2, Chapter 15

31,969
18,031
5,000
55,000
31,641
31,641
55,000
18,031
5,000
31,969

The McGraw-Hill Companies, Inc., 2013

1565

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1521
Requirement 1
January 1
Cash ................................................................................
Unearned rent revenue* ..............................................
Deferred initial direct cost ..............................................
Cash ............................................................................
December 31
Unearned rent revenue ....................................................
Rent revenue* .............................................................

20,873
20,873
2,062
2,062
20,873
20,873

Lease expense ($2,062 3 years) .......................................

Deferred initial direct cost ..........................................

687

Depreciation expense ($100,000 6 years) ........................

Accumulated depreciation ..........................................

16,667

687
16,667

Alternatively, rent revenue. Either way, an adjusting entry is needed at the end of the
reporting period to assure that the earned portion of the payment is recorded in rent
revenue and the unearned portion in unearned rent revenue

Requirement 2
January 1
Proof that new effective rate is 9% (not required):
=
$20,873
$102,062 4.88965**
lessors
lease
net investment
payments
** Present value of an annuity due of $1: n = 6, i = 9%

Solutions Manual, Vol.2, Chapter 15

The McGraw-Hill Companies, Inc., 2013

1567

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1521 (concluded)

January 1
Lease receivable (fair value / present value).........................
Inventory of equipment (lessors cost)...........................

100,000
100,000

Lease receivable ..............................................................

Cash (initial direct costs) .................................................

2,062

Cash (lease payment) ..........................................................

Lease receivable ..........................................................

20,873

2,062
20,873

December 31
Interest receivable ...........................................................
Interest revenue (9% x [$100,000 + 2,062 20,873]) ........

7,307

Requirement 3
January 1
Lease receivable (fair value / present value).........................
Cost of goods sold (lessors cost) ......................................
Sales revenue (fair value / present value) .........................
Inventory of equipment (lessors cost)...........................

100,000
85,000

7,307

100,000
85,000

Selling expense ...............................................................

Cash (initial direct costs) .................................................

2,062

Cash (lease payment) ..........................................................

Lease receivable ..........................................................

20,873

December 31
Interest receivable ...........................................................
Interest revenue (10% x [$100,000 20,873]) ..................

The McGraw-Hill Companies, Inc., 2013

1568

2,062
20,873
7,913
7,913

Intermediate Accounting, 7e

Find more slides, ebooks, solution manual and testbank on www.downloadslide.com

Exercise 1526
Requirement 1
Present value of periodic lease payments*
($102,771 x 7.49236**)
$770,000*
* Rounded
** Present value of an annuity due of $1: n = 13, i = 11%

The lease meets at least one (actually three of four in this case) criteria for
classification as a capital lease.
January 1, 2013
Cash (given) .....................................................................
Airplanes (carrying value) .............................................
Deferred gain on sale-leaseback (difference)................

770,000
620,000
150,000

Leased airplane (present value of lease payments) ...................

Lease payable (present value of lease payments) ..............

770,000

Lease payable ................................................................

Cash ............................................................................

102,771

770,000
102,771

Requirement 2
December 31, 2013
Interest expense (11% x [$770,000 102,771]) .......................
Interest payable ..........................................................

73,395
73,395

Depreciation expense ($770,000 15 years*) ....................

Accumulated depreciation ..........................................

51,333

Deferred gain on sale-leaseback ($150,000 15 years) .......

Depreciation expense .................................................

10,000

51,333
10,000

* The airplane is depreciated over its remaining useful life rather than the lease term
because title transfers to the lessee.

Solutions Manual, Vol.2, Chapter 15

The McGraw-Hill Companies, Inc., 2013

1573