Dianne Company signed a ten-year lease agreement on January 1, 2012. The lease requires payments of $5,000
Question:
Dianne Company signed a ten-year lease agreement on January 1, 2012. The lease requires payments of $5,000 per year every December 31. Dianne estimates that the leased property has a life of 12 years. The interest rate that applies to the lease is 8%.
Required
1. Should Dianne Company treat the lease as an operating lease or a capital lease?
2. If a balance sheet is presented on January 1, 2012, what amounts related to the lease will appear on the balance sheet?
3. Assume that the leased asset is depreciated using the straight-line method. Assume that the lease is amortized using the effective interest method. What amounts should appear on the balance sheet of December 31, 2012?
Balance SheetBalance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Step by Step Answer:
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1111534912
8th edition
Authors: Gary A. Porter, Curtis L. Norton