Current Attempt in Progress Sheffield Design Inc. (SD) is a privately owned business that provides interior decorating options for consumers. SD follows ASPE. The software that it purchased six years ago to present clients with designs that are unique to their offices is no longer state of the art and SD has to make a decision on replacing its software. The company has two options 1 Enter into a lease agreement with Precision Inc. whereby SD makes an upfront lease payment of $12.210 on January 1, 2021. and annual payments of $4,160 over the next five years on each December 31. At the end of the lease, SD has the option to buy the software for $4,80s. The first annual lease payment is on December 31, 2021. Enter into a lease agreement with Graphic Inc on January 1, 2021, whereby SD makes five annual lease payments of $6.615, beginning on January 1, 2021. SD may purchase the software at the end of the lease period for $216. This is considered a bargain price compared with the offer of $4,805 in the proposal from Precision Inc. 2 Under both options, the software will require annual upgrades that are expected to cost $1,588 per year. These upgrade costs are in addition to the lease payments that are required under the two independent options. Because this additional cost is the same under both options, SD has decided to ignore it in making its choice. The Precision agreement requires a licensing fee of $1,062 to be renewed annually. If SD decides on the Precision option, the licensing fee will be included in the annual lease payment of $4,160, Both Precision Inc. and Graphic Inc offer software programs of similar quality and ease of use, and both provide adequate support and training. The software under each offer is expected to be used for up to eisht years, although this depends to some extent on technological advances in future years. Both offers are equivalent in terms of It is now early October 2020, and SD hopes to have the software in place by its fiscal year end of December 31, 2020. SD is currently working on preparing its third-quarter financial statements, which its bank is particularly interested in seeing in order to ensure that SD is respecting its debt to equity ratio covenant in its loan agreement with the bank. The interest rate on the bank loan, which is SD's only source of external financing, is 10% per year. SD would have preferred to be able to buy rather than lease the software, but the expected purchase price of $30,131 exceeds the limits that the bank set for SD's borrowing. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE Your answer is partially correct. Using tables, a hinancial calculator or Excel functions, calculate the PV of the future minimum lease payments under each option (Round factor values to 5 decimal places, eg, 1.25124 and final answers to O decimal places, es, 5,275.) Present Value Option 1 Precision Inc. $ 29556.6176 Option 2 - Graphic Inc S 27584 Prepare all necessary journal entries and adjusting journal entries for SD under the Precision Inc. option from lease inception on January 1, 2021, through to December 31, 2021, excluding the $1,588 annual upgrade. (Credit account titles are automatically Indented when the amount is entered. Do not Indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2021 Equipment under lease 12210 Cash 12210 Dec 31, 2021 Equipment under lease 4160 Obligations under Lease 1062 Cash 5222 To record payment of rent and operating expenses.) to O decimal places, e.g. 5,275.) Annual Lease Payment Sheffield Design Inc. Lease Amortization Schedule with Graphic Inc. Interest Reduction on Unpaid of Lease Obligation Obligation Balance of Lease Obligation 4 5027 2255 5027 2255.7 20301 5027 2000.1 101 182712 5027 1827.1 16444 5027 1644.41 14799.65 5027 Prepare all necessary journal entries and adjusting journal entries for SD under Graphic's option from lease inception on January 1,2021, through to January 1, 2022, excluding the $1.588 annual upgrade. (Round answers to decimal places, es: 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select 'No Entry" for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Cre Jan 1, 2021 (To record inception of lease and first lease payment.) (To record interest IO To record lease payment.) eTextbook and Media List of Accounts Your answer is partially correct tial cash outflows that would be made by SD during 2021 under each option. If the cash flow is negative, please enter negative amounts using either a negative sign preceding the number es. -45 or parentheses es.(451 Income statement effects Option No. 1 Operating Lease Option No. 2 Capital Lease $ Asset and liability balances Dec 31, 2021 111 V Current Attempt in Progress Sheffield Design Inc. (SD) is a privately owned business that provides interior decorating options for consumers. SD follows ASPE. The software that it purchased six years ago to present clients with designs that are unique to their offices is no longer state of the art and SD has to make a decision on replacing its software. The company has two options 1 Enter into a lease agreement with Precision Inc. whereby SD makes an upfront lease payment of $12.210 on January 1, 2021. and annual payments of $4,160 over the next five years on each December 31. At the end of the lease, SD has the option to buy the software for $4,80s. The first annual lease payment is on December 31, 2021. Enter into a lease agreement with Graphic Inc on January 1, 2021, whereby SD makes five annual lease payments of $6.615, beginning on January 1, 2021. SD may purchase the software at the end of the lease period for $216. This is considered a bargain price compared with the offer of $4,805 in the proposal from Precision Inc. 2 Under both options, the software will require annual upgrades that are expected to cost $1,588 per year. These upgrade costs are in addition to the lease payments that are required under the two independent options. Because this additional cost is the same under both options, SD has decided to ignore it in making its choice. The Precision agreement requires a licensing fee of $1,062 to be renewed annually. If SD decides on the Precision option, the licensing fee will be included in the annual lease payment of $4,160, Both Precision Inc. and Graphic Inc offer software programs of similar quality and ease of use, and both provide adequate support and training. The software under each offer is expected to be used for up to eisht years, although this depends to some extent on technological advances in future years. Both offers are equivalent in terms of It is now early October 2020, and SD hopes to have the software in place by its fiscal year end of December 31, 2020. SD is currently working on preparing its third-quarter financial statements, which its bank is particularly interested in seeing in order to ensure that SD is respecting its debt to equity ratio covenant in its loan agreement with the bank. The interest rate on the bank loan, which is SD's only source of external financing, is 10% per year. SD would have preferred to be able to buy rather than lease the software, but the expected purchase price of $30,131 exceeds the limits that the bank set for SD's borrowing. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE Your answer is partially correct. Using tables, a hinancial calculator or Excel functions, calculate the PV of the future minimum lease payments under each option (Round factor values to 5 decimal places, eg, 1.25124 and final answers to O decimal places, es, 5,275.) Present Value Option 1 Precision Inc. $ 29556.6176 Option 2 - Graphic Inc S 27584 Prepare all necessary journal entries and adjusting journal entries for SD under the Precision Inc. option from lease inception on January 1, 2021, through to December 31, 2021, excluding the $1,588 annual upgrade. (Credit account titles are automatically Indented when the amount is entered. Do not Indent manually. If no entry is required, select "No Entry for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 1, 2021 Equipment under lease 12210 Cash 12210 Dec 31, 2021 Equipment under lease 4160 Obligations under Lease 1062 Cash 5222 To record payment of rent and operating expenses.) to O decimal places, e.g. 5,275.) Annual Lease Payment Sheffield Design Inc. Lease Amortization Schedule with Graphic Inc. Interest Reduction on Unpaid of Lease Obligation Obligation Balance of Lease Obligation 4 5027 2255 5027 2255.7 20301 5027 2000.1 101 182712 5027 1827.1 16444 5027 1644.41 14799.65 5027 Prepare all necessary journal entries and adjusting journal entries for SD under Graphic's option from lease inception on January 1,2021, through to January 1, 2022, excluding the $1.588 annual upgrade. (Round answers to decimal places, es: 5,275. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select 'No Entry" for the account titles and enter for the amounts.) Date Account Titles and Explanation Debit Cre Jan 1, 2021 (To record inception of lease and first lease payment.) (To record interest IO To record lease payment.) eTextbook and Media List of Accounts Your answer is partially correct tial cash outflows that would be made by SD during 2021 under each option. If the cash flow is negative, please enter negative amounts using either a negative sign preceding the number es. -45 or parentheses es.(451 Income statement effects Option No. 1 Operating Lease Option No. 2 Capital Lease $ Asset and liability balances Dec 31, 2021 111 V