Pane records depreciation and amortization expense. Use the nearest whole month convention, and the double declining balance
Question:
Pane records depreciation and amortization expense. Use the nearest whole month convention, and the double declining balance method for depreciation and the whole-year convention and the straight-line method for amortization. Note that all assets on the books at the beginning of the year are fully depreciated. Use the accumulated depreciation and accumulated amortization accounts. (See Transaction #1 and #3). Each asset is a separate journal entry.
#1On January 1, Pane purchases equipment on account that it plans to lease to others. Pane then enters into an operating lease agreement with Big Pig Company. Pane agrees to pay the annual insurance premiums (and did so on January 1). The annual lease payments are received in cash at the beginning of each year and recorded in the appropriate income statement account at the time of receipt. Additional information is below:
Equipment Cost | $450,000 |
Estimated Life of Equipment (years) | 8 |
Residual Value | $0 |
Lease Term (in years) | 3 |
Annual Lease Payment | $80,000 |
Annual Insurance Premium | $2,125 |
Discount Rate | 10% |
#3 On January 14, Pane enters into a finance lease arrangement to lease equipment from SmartGlass Company. The annual lease payments are made at the end of every year. The lease information is as follows:
Fair Value of Leased Equipment | $140,000 |
Lease Term (in years) | 7 |
Applicable Interest Rate | 10% |
Annual Payment | $28,756.77 |
Economic Life | 7 |
Expert Answer:
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