Financial Statement Reporting for an Operating Lease

Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 3 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 3 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 8%. Answer the following questions. (Hint: See Table 19-1.)

1. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$

1. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent.

$

1. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value.

$

1. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$

1. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value.

$

1. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent.

$ DO NOT GET THIS WRONG

TABLE 19-1 Financial Reporting for Leases ivlat tease enpeise \$10,014 Q10,010 Q7, Source: See the file Ch19 Tool Kit.xlsx. Numbers in the table are shown as rounded values for clarity in reporting. However, unrounded values are used for all calculations. Notes: The lease liability in Year 0 is equal to the initial lease liability. For subsequent years, the lease liability balance is equal to the previous balance plus the imputed interest minus the lease payment. -The imputed interest for the end of Year t is equal to the cost of debt (rd) multiplied by the lease liability payment at the beginning of Year t. The right-of-use asset balance for an operating lease is equal to the lease liability balance. d The lease expense for an operating lease is equal to the lease payment. The right-of-use balance for a finance lease is equal to the previous balance minus the amortization charge. 'The interest expense for a finance lease is equal to the imputed interest . sThe amortization charge for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease