Question

Mickelson reports on a calendar year basis. On January 1, 2014, Mickelson Corporation enters into a three-year lease with annual payments of $30,000. The first payment will be due on December 31, 2014. The present value of the payments at 8% is $77,313. If the lease is classified as a capital lease, the following amortization table would be used to record interest expense:


Required:
1. If the lease were classified as an operating lease, show for each year the effects on the operating, investing, and financing activities sections of the statement of cash flows (direct method).
2. If the lease were classified as a capital lease, show for each year the effects on the operating, investing, and financing activities sections of the statement of cash flows (direct method). Assume that the leased asset is depreciated over three years.
3. If the lease were classified as a Type B lease under the FASB’s 2013 Exposure Draft, show for each year the effects on the operating, investing, and financing activities sections of the statement of cash flows (direct method). Assume that the leased asset is depreciated over threeyears.


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  • CreatedSeptember 10, 2014
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