Stobbins Inc leased a machine from Early Leasing Company on 1/1/Year1. It is a 6-year lease term.
Question:
Stobbins Inc leased a machine from Early Leasing Company on 1/1/Year1. It is a 6-year lease term. Stobbins pays 5,000 annually for use of the machine.
The first payment is on 12/31/Year1 and the payments thereafter are on 12/31 of each year. (In other words, lease payments are an ordinary annuity.) Early paid $23,114 for the machine and the implicit interest rate in the lease is 8%. The machine has an estimated useful life of 6 years.
1. Is this an operating lease or a financing lease?
2. Complete the amortization schedule Stobbins would prepare for this Lease Payable.
3. Related to this lease, how will Stobbins report as each of the following on the income statement for Year1? Hint: consider your answer to Question 11 as there are different reporting for the 2 types of leases. If the account title is not used on the income statement for this type of lease, answer N/A. You will have at least one N/A.
a. Lease or rent expense
b. Interest expense
c. Amortization expense
4. What will the lessee (Stobbins) report on the 12/31/Year1 balance sheet as a right-of -use asset? Show any math to arrive at your final answer.
5. What amount will Stobbins report as Lease Payable on the balance sheet as of 12/31/Year1?
6. What amount will the lessor (Early) report as revenue related to this lease for Year1.