Professional Documents
Culture Documents
LEASES
PROBLEMS
1 Cash 600,000
Rent Revenue 400,000
Unearned Rent Revenue 200,000
2 M/5 = 400,000
2 M x 30% = 600,000
Lessee’s Books
2007
Jan. 1 Rent Expense 400,000
Prepaid Rent 200,000
Cash 600,000
2008
Jan. 1 Rent Expense 400,000
Cash 400,00
(b)
Income Statement: Hope Charity
Rent Revenue 400,000
Depreciation Expense 212,000
Rent Expense 400,000
Balance Sheet: Hope Charity
Machine for Lease, net of Accum 2,048,000
Depreciation
Unearned Rent Revenue 200,000
Prepaid Rent 200,000
Chapter 4 – Leases
or
Monthly rental 10,000
Less lease bonus (60,000/60 mos.) (1,000)
Rent Expense per month 9,000
No. of months for Sept. 1- Dec. 31 x4
Rent Expense for 2007 36,000
Love Corporation
2007
Dec. 31 Rent Receivable 36,000
Rent Revenue 36,000
37
Chapter 4 – Leases
2008
Mar. 1 - Dec. 1 monthly entry
Cash 10,000
Rent Revenue 10,000
1 Cash 20,000
Rent Revenue 20,000
Nov. 1 Cash 20,000
Rent Revenue 20,000
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Chapter 4 – Leases
Lessee’s Books
2007
Oct. 1 Rent Expense 54,000
Cash 54,000
1 Rent Expense 20,000
Cash 20,000
Nov. 1 Rent Expense 20,000
Cash 20,000
Dec. 1 Rent Expense 20,000
Cash 20,000
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Chapter 4 – Leases
©
Dec. 31 Accumulated Depreciation 1,032,400
Interest Expense 16,392
Finance Lease Obligation 183,608
Leased Automobile 1,232,400
d.
Dec. 31 Loss on Finance Lease 50,000
Accumulated Depreciation 1,032,400
Interest Expense 16,392
Finance Lease Obligation 183,608
Leased Automobile 1,232,400
Cash 50,000
40
Chapter 4 – Leases
(c)
2007
Jan 1 Leased Machine 361,447
Finance Lease Obligation 361,447
2008
Jan. 1 Finance Lease Obligation 59,203
Interest Payable 27,477
Cash 86,680
(d)
Balance Sheet 2006 2007
Property, Plant and Equipment
Leased Machine 361,447 361,447
Accumulated Depreciation 72,289 144,578
Current Liabilities:
Interest Payable 27,477 21,556
Finance Lease Obligation 59,203 65,124
Noncurrent Liabilities:
Finance Lease Obligation 215,564 150,440
Income Statement
Interest Expense 27,477 21,556
Depreciation Expense 72,289 72,289
(b)
Total Annual Reduction in Lease
Date Payment Interest Principal Obligation
Expense
12/31/07 - - 1,011,840
12/31/07 135,000 - 135,000 876,840
12/31/08 135,000 87,684 47,316 829,524
12/31/09 135,000 82,952 52,048 777,476
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Chapter 4 – Leases
(b)
Total Annual Reduction in Lease
Date Payment Interest Principal Obligation
Expense
01/01/07 - - 741,771
01/01/07 150,000 - 150,000 591,771
01/01/08 150,000 71,013 78,987 512,784
01/01/09 150,000 61,534 88,466 424,318
01/01/10 150,000 50,918 99,082 325,236
01/01/11 150,000 39,028 110,972 214,264
12/31/11 240,000 25,736* 214,264 -
*Adjusted; difference is due to rounding off.
(c) 741,771 / 15 years = 49,451
(d)
42
Chapter 4 – Leases
2007
Jan. 1 Leased Machinery 741,771
Finance Lease Obligation 741,771
1 Finance Lease Obligation 150,000
Cash 150,000
2008
Jan. 1 Finance Lease Obligation 78,987
Interest Payable 71,013
Cash 150,000
1 Cash 100,000
Finance Lease Receivable 100,000
43
Chapter 4 – Leases
1 Cash 175,000
Finance Lease Receivable 175,000
44
Chapter 4 – Leases
45
Chapter 4 – Leases
2008
Jan. 1 Finance Lease Obligation 91,725
Interest Payable 46,207
Cash 137,932
46
Chapter 4 – Leases
2007
Jan. 1 Finance Lease Receivable 729,660
Equipment for Lease 600,000
Unearned Interest Revenue 129,660
Cash 137,932
Finance Lease Receivable 137,932
2008
Jan. 1 Cash 137,932
Finance Lease Receivable 137,932
c. Amortization Table
2007
Oct. 1 Finance Lease Receivable (850,365 x 6) + 166,300 5,268,490
Cost of Goods Sold (3,200,000 – 84,248) 3,115,752
Inventory 3,200,000
Sales 3,914,080
Unearned Interest Revenue 1,270,162
47
Chapter 4 – Leases
d. Amortization Table
Periodic Reduction in Balance of
Date Payment Interest Principal Principal
Oct. 1, 2007 3,915,761
Oct. 1, 2007 850,365 850,365 3,065,396
Oct. 1, 2008 850,365 367,848 482,517 2,582,879
Oct. 1, 2009 850,365 309,945 540,420 2,042,459
2007
Oct. 1 Leased Equipment 3,915,761
Finance Lease Obligation 3,915,761
2008
Oct. 1 Interest Payable 91,962
Interest Expense 367,848 – 91,962 275,886
Finance Lease Obligation 482,517
Cash 850,365
48
Chapter 4 – Leases
49
Chapter 4 – Leases
2007
July 1 Cash 540,000
Accumulated Depreciation 350,000
Equipment 800,000
Gain on Sale Leaseback 50,000
Unearned Profit on Sale Leaseback 40,000
2007
July 1 Cash 350,000
Accumulated Depreciation 350,000
Deferred Loss on Sale Leaseback 100,000
Equipment 800,000
50