The following footnote was disclosed at the beginning of 2011 (January 1, 2011). At January 1, 2011
Question:
The following footnote was disclosed at the beginning of 2011 (January 1, 2011).
At January 1, 2011
Capital Lease | Operating Lease | |
|---|---|---|
Year | Payment | Payment |
2011 | $ 5,000 | $ 6,000 |
2012 | 5,000 | 6,000 |
2013 | 5,000 | 6,000 |
2014 | 5,000 | |
2015 | 5,000 | |
Total payments | $25,000 | $18,000 |
Interest (10%) | 6,046 | |
Present value | $18,954 |
The capital lease began on January 1, 2010 when the fair value of the capital lease was $21,776 (with a six-year life). The operating lease began on January 1, 2011 when the fair value of the operating lease at the inception of the lease was $14,921 (with a three-year lease term). Straight-line depreciation is used for all assets. Each lease requires equal annual payments to be made at year-end.
Required:
1. Under existing U.S. GAAP, what is the amount of lease liability recorded on the balance sheet at January 1, 2011?
2. If the proposed changes in accounting for leases become authoritative, what would be the amount of lease liability recorded on the balance sheet at January 1, 2011?
3. Which approach (part 1 or part 2) do you think provides more relevant information to the users of the financial statements? Why?
Expert Answer:
ANSWER itl lese is lngterm lese tht in unting is treted s if the lessee hs wned the sset rther thn l... View the full answer
