Moore Company sells and leases its computers. Moore’s cost and sales price per machine are $1,200 and $3,000, respectively. At the end of three years, the expected residual value is $400, which is guaranteed by the lessee. Moore leases 20 of these machines to Mitchum Co. on September 1, 2014. Moore has no additional costs to complete, and Mitchum is creditworthy.
Both Moore and Mitchum use straight-line depreciation. The economic life of each computer is four years. Be sure to use a spreadsheet program for this problem.
1. Compute the monthly rental payment for a three-year lease, assuming that Moore wishes to earn 1% per month. Payments are to be made at the beginning of each month.
2. What type of lease is this for Moore? Explain.
3. What entry(ies) does Moore make at September 1, 2014, related to the lease?
4. Prepare an amortization table using a spreadsheet package for the life of the lease.
5. Show how Moore’s income statement for the year ended December 31, 2014, will be affected.
6. What accounts and amounts are on Moore’s balance sheet at December 31, 2014? Be sure to address reclassifications between current and noncurrent.
7. Repeat requirements 2 through 6 for Mitchum.

  • CreatedSeptember 10, 2014
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