Question: On January 1 the lessor company purchased some equipment for cash

On January 1, the lessor company purchased some equipment (for cash) that the company then immediately leased. The lease contract calls for the receipt of $3,000 payments at the end of each year for 10 years. The residual value of the equipment at the end of the 10-year lease term is expected to be $4,000. The rate implicit in the lease is 12%. Except for lease related items, there were no changes in current operating assets or liabilities during the year; no purchases or sales of property, plant, or equipment; and no dividends paid, stock issued, or loans obtained or repaid. The equipment has a total useful life of 15 years with no salvage value. Prepare a complete statement of cash flows for the lessor using the indirect method of reporting operating cash flow assuming that the lease is accounted for as
(1) An operating lease (net income was $20,000) and
(2) A direct financing lease (net income was $20,405).

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  • CreatedApril 07, 2012
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