On January 1, Lessee Inc. signs a three-year non-cancelable agreement to lease equipment (no residual value)...

 

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On January 1, Lessee Inc. signs a three-year non-cancelable agreement to lease equipment (no residual value) from Lessor Inc. The lessee accounts for the lease as a finance lease, which requires three lease payments of $34,972 each, payable January 1 and December 31 of this year, and December 31 of next year. The lessor's im- plicit rate is 5%, which is known to the lessee, resulting in the recording of a right-of-use asset and lease liability of $100,000 (PV(0.05,3,34972,0,1)) at the inception of the lease. As a result, the lessee recorded the following entries in the current year (amounts rounded). January 1 Right-of-Use Asset Lease Liability To record right-of-use asset and lease liability Lease Liability Cash To record lease payment December 31 Interest Expense Lease Liability Cash To record lease payment Amortization Expense Right-of-Use Asset ($100,000/3) To record amortization on right-of-use asset 100,000 34,972 3,251 31,721 33,333 100,000 34,972 34,972 33,333 Indicate the impact of the transactions on the operating, investing, and financing sections of the current year statement of cash flows. The indirect method is used to report cash flows from operating activities. Note: Indicate a subtraction in the statement of cash flows with a negative sign in the Amount column. Note: If an item is not included in the statement of cash flows, enter zero (leave blank) in the Amount column, and enter "N/A" in the Cash Flow Section column. Item Increase in right-of-use asset Lease payments $ Amount Amortization expense $ Finance lease initiated for equipment $ Cash Flow Section ÷ OO 46 On January 1, Lessee Inc. signs a three-year non-cancelable agreement to lease equipment (no residual value) from Lessor Inc. The lessee accounts for the lease as a finance lease, which requires three lease payments of $34,972 each, payable January 1 and December 31 of this year, and December 31 of next year. The lessor's im- plicit rate is 5%, which is known to the lessee, resulting in the recording of a right-of-use asset and lease liability of $100,000 (PV(0.05,3,34972,0,1)) at the inception of the lease. As a result, the lessee recorded the following entries in the current year (amounts rounded). January 1 Right-of-Use Asset Lease Liability To record right-of-use asset and lease liability Lease Liability Cash To record lease payment December 31 Interest Expense Lease Liability Cash To record lease payment Amortization Expense Right-of-Use Asset ($100,000/3) To record amortization on right-of-use asset 100,000 34,972 3,251 31,721 33,333 100,000 34,972 34,972 33,333 Indicate the impact of the transactions on the operating, investing, and financing sections of the current year statement of cash flows. The indirect method is used to report cash flows from operating activities. Note: Indicate a subtraction in the statement of cash flows with a negative sign in the Amount column. Note: If an item is not included in the statement of cash flows, enter zero (leave blank) in the Amount column, and enter "N/A" in the Cash Flow Section column. Item Increase in right-of-use asset Lease payments $ Amount Amortization expense $ Finance lease initiated for equipment $ Cash Flow Section ÷ OO 46

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