On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments
Question:
On January 1, 2016, Mary Company leased equipment, signing a five-year lease that requires annual lease payments of $20,000. The lease qualifies as a capital lease. The payments are made at year-end, and the first payment will be made at December 31, 2016. In addition, Mary guarantees the residual value to be $8,000 at the end of the lease term. Mary correctly uses the lessor's implicit interest rate, which is 12%. The present value factors for five periods at 12% are as follows:
Present value of $1 0.567427
Present value of ordinary annuity of $1 3.604776
a. Refer to Exhibit 20-2. What is the interest expense associated with the lease obligation for the year ending December 31, 2017? (Round answers to the nearest dollar.)
b. Refer to Exhibit 20-2. If the Mary Company uses the straight-line method of depreciation for its assets, what is the amount of depreciation expense for the leased equipment for the year ending December 31, 2016?
c. Refer to Exhibit 20-2. What would be the debit to Leased Equipment under Capital Leases on January 1, 2016? (Round amounts to the nearest dollar.)
d. Refer to Exhibit 20-2. What is the amount of interest expense associated with the leased equipment for the year ending December 31, 2016?
I know the answers, i just need step by step guide on how to get the answer. Thanks!
Intermediate Accounting Reporting and Analysis
ISBN: 978-1285453828
2nd edition
Authors: James M. Wahlen, Jefferson P. Jones, Donald Pagach