The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Buffalo Electronics, a
Question:
The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Buffalo Electronics, a lessee, for a computer system.
Commencement date | October 1, 2020 | ||
Lease term | 6 | years | |
The economic life of leased equipment | 6 | years | |
The fair value of the asset on October 1, 2020 | $321,200 | ||
Book value of the asset on October 1, 2020 | $280,000 | ||
Residual value at end of lease term | –0– | ||
Lessor’s implicit rate | 11 | % | |
Lessee’s incremental borrowing rate | 11 | % | |
Annual lease payment due at the beginning of | |||
each year, beginning with October 1, 2020 | $68,400 |
The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.
The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor.
Date | Lease | Interest (11%) on Unpaid | Reduction of Lease | Balance of Lease | ||||
10/01/20 | $321,200 | |||||||
10/01/20 | $68,400 | $68,400 | 252,800 | |||||
10/01/21 | 68,400 | $27,808 | 40,592 | 212,208 | ||||
10/01/22 | 68,400 | 23,343 | 45,057 | 167,151 | ||||
10/01/23 | 68,400 | 18,387 | 50,013 | 117,138 | ||||
10/01/24 | 68,400 | 12,885 | 55,515 | 61,623 | ||||
10/01/25 | 68,400 | 6,777 | 61,623 | –0– | ||||
$410,400 | $89,200 | $321,200 |
Assuming the lessee’s accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g. 58,971.)
(1) What items and amounts will appear on the lessee’s income statement for the year ending September 30, 2021?
$27,808 | |
$ |
(2) What items and amounts will appear on the lessee’s balance sheet at September 30, 2021?
Balance Sheet (Partial) | September 30, 2021 |
Current Liabilities | |
$ | |
Long-Term Liabilities | |
$ | |
Non Current Assets | |
$ |
(3) What items and amounts will appear on the lessee’s income statement for the year ending September 30, 2022?
$23,343 | |
$ |
(4) What items and amounts will appear on the lessee’s balance sheet at September 30, 2022?
Balance Sheet (Partial) | September 30, 2022 |
Current Liabilities | |
$ | |
Long-Term Liabilities | |
$ | |
Non-Current Assets | |
$ |
Intermediate Accounting
ISBN: 978-1118147290
15th edition
Authors: Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield