Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2010. Annual

Question:

Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2010. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2010.

Required

1. Assume that the lease is treated as an operating lease.

a. Will the value of the forklift appear on Koffman’s balance sheet?

b. What account will indicate that lease payments have been made?

2. Assume that the lease is treated as a capital lease.

a. Identify and analyze the effect when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 ($1,510 × 4).

b. Identify and analyze the effect of the first payment of December 31, 2010.

c. Calculate the amount of depreciation expense for the year 2010.

d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2010?

Balance Sheet
Balance 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...