Exercise $15-25($Static$)$ Lessor; sales$-$type lease; residual value effect on financial

statements $[$LO$15-2,15-6]$

At January $1,2024,$ Caf$$ Med leased restaurant equipment from Crescent Corporation under a nine$-$

year lease agreement.

$-$The lease agreement specifies annual payments of $$25,000$ beginning January $1,2024,$ the

beginning of the lease, and on each December $31$ thereafter through $2031.$

$-$The equipment was acquired recently by Crescent at a cost of $$180,000($its fair value$)$ and was

expected to have a useful life of $12$ years with no salvage value at the end of its life.

$-$Because the lease term is only nine years, the asset does have an expected residual value at the

end of the lease term of $$50,995.$

$-$Both $($a$)$ the present value of the lease payments and $($b$)$ the present value of the residual value

$($i$.$e$.,$ the residual asset$)$ are included in the lease receivable because the two amounts combine to

allow the lessor to recover its net investment.

$-$Crescent seeks a $10\%$ return on its lease investments.

By this arrangement, the lease is deemed to be a finance lease to the lessee.

Note: Use tables, Excel, or a financial calculator. $($FV of $$1,$ PV of $$1,$ FVA of $$1,$ PVA of $$1,$ FVAD of $$1$

and PVAD of $$1)$

Required:

What will be the effect of the lease on Crescent's earnings for the first year $($ignore taxes$)?$

Note: Enter decreases with negative sign.

What will be the balances in the balance sheet accounts related to the lease at the end of the first

year for Crescent $($ignore taxes$)?$

Answer is complete but not entirely correct.