Taylor Company leased an asset from Lease Corp. using an operating lease for equipment with a useful
Question:
Taylor Company leased an asset from Lease Corp. using an operating lease for equipment with a useful life of seven years. The initial lease term was for three years. After two years, Taylor Company and Lease Corp. agree to extend the lease term by four years, and to change the amount of lease payments. The additional four years were not originally an option. The increase in present value of lease payments for Taylor is $200,000. The present value of the remaining lease payments for Lease Corp is $300,000. The initial cost of the equipment to Lease Corp was $500,000. The useful life of the equipment is estimated to be seven years and depreciation is computed straight-line with no residual value. How should Lease Corp account for this lease modification? (Select all that apply)
credit asset $500,000
debit cost of goods sold for $500,000
credit lease payable for $200,000
debit lease receivable for $300,000
debit cost of goods sold for $357,143
debit accumulated depreciation for $142,857
debit right-of-use asset for $200,000
credit sales revenue for $300,000
Cost management a strategic approach
ISBN: 978-0073526942
5th edition
Authors: Edward J. Blocher, David E. Stout, Gary Cokins