Empire, Inc., leased a starship on January 2, 2012. Terms of the lease require annual payments of

Question:

Empire, Inc., leased a starship on January 2, 2012. Terms of the lease require annual payments of $135,746 per year for 14 years. The interest rate on the lease is 10%, and the first payment is due on December 31, 2012.

Required:

1. Compute the present value of the lease payments.

2. Assuming the lease qualifies as a capital lease, prepare the journal entry to record the lease.

3. Prepare the journal entry to record the first lease payment on December 31, 2012, and to depreciate the leased asset. Empire, Inc., uses the straight-line method for depreciating all long-term assets.

4. Interpretive Question: How would the leased asset, and its associated liability, be disclosed on the balance sheet prepared on December 31, 2012?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...