- •Chapter 15 Leases
- •Question 15-1
- •Question 15-7
- •Question 15-8
- •Question 15-9
- •Question 15-10
- •Question 15-11
- •Question 15-12
- •Question 15-13
- •Question 15-14
- •Question 15-15
- •Question 15-16
- •Question 15-17
- •Question 15-18
- •Question 15-19
- •Question 15-20
- •Question 15-21
- •Question 15-22
- •Question 15-23
- •Brief Exercise 15-1
- •Brief Exercise 15-2
- •Brief Exercise 15-3
- •Brief Exercise 15-5
- •Brief Exercise 15-6
- •Brief Exercise 15-7
- •Brief Exercise 15-9
- •Brief Exercise 15-11
- •Brief Exercise 15-12
- •Brief Exercise 15-14
- •Exercise 15-1
- •Present Value of Minimum Lease Payments:
- •Lease Amortization Schedule
- •120,000 7,920 112,080
- •Lease Amortization Schedule
- •120,000 7,920 112,080
- •Lessor’s Calculation of Lease Payments
- •Lessee’s Application of Classification Criteria
- •Lessee’s Application of Classification Criteria
- •Lessee’s Application of Classification Criteria
- •Lessee’s Application of Classification Criteria
- •Lease Amortization Schedule
- •1. Calculation of the present value of lease payments
- •2. Liability at December 31, 2011
- •3. Expenses for year ended December 31, 2011
- •1. Receivable at December 31, 2011
- •2. Interest revenue for year ended December 31, 2011
- •1. Calculation of the present value of lease payments (“selling price”)
- •2. Receivable at December 31, 2011
- •3. Income effect for year ended December 31, 2011
- •1 2 3 4
- •Lease Amortization Schedule
- •Lease Amortization Schedule
- •1. January 1, 2011
- •2. Effective rate of interest revenue:
- •3. December 31, 2011
- •Inception of the Lease, January 1, 2011
- •Exercise 15-29
- •1. Definition of a bargain purchase option:
- •Problem 15-1
- •1. Effective rate of interest implicit in the agreement
- •1. Receivable at December 31, 2011
- •2. Interest revenue for year ended December 31, 2011
- •3. Statement of cash flows for year ended December 31, 2011
- •1. Calculation of the present value of lease payments (“selling price”)
- •2. Receivable at December 31, 2011
- •3. Income effect for year ended December 31, 2011
- •4. Statement of cash flows for year ended December 31, 2011
- •Lessor’s Calculation of Lease payments
- •Application of Classification Criteria
- •Present Value of Minimum Lease Payments
- •Lease Amortization Schedule
- •Lessor’s Calculation of Lease payments
- •Application of Classification Criteria
- •Present Value of Minimum Lease Payments
- •Lease Amortization Schedule
- •Lease Amortization Schedule
- •Lessor’s Calculation of Lease payments
- •Application of Classification Criteria
- •Present Value of Minimum Lease Payments
- •Lease Amortization Schedule
- •Lessor’s Calculation of Lease payments
- •Lessee’s Calculation of the Present Value of Minimum Lease Payments
- •Lease Amortization Schedule
- •Problem 15-12
- •1 2 3 4
- •1 2 3 4
- •Lease Amortization Schedule
- •30,000 3,573 26,427
- •Lessee’s Application of Classification Criteria
- •Schedule 1: Lessee’s Calculation of the Present Value of Minimum Lease Payments
- •Application of Classification Criteria
- •Schedule 2: Lessor’s Calculation of the Present Value of Minimum Lease Payments
- •Lessor’s Calculation of Lease Payments
- •Lessee’s Amortization Schedule
- •46,000 6,436 39,564
- •Lessor’s Amortization Schedule
- •55,000 9,886 45,114
- •Application of Classification Criteria
- •Lease Amortization Schedule
- •Lease Amortization Schedule
- •880,000 216,375 663,625
- •Application of Classification Criteria
- •Lease Amortization Schedule
- •880,000 234,474 645,526
- •Income Statement
- •Lease Amortization Schedule
- •Analysis Case 15-1
- •9 Commitment (in part)
- •Lease Amortization Schedule
- •Ifrs Case 15-5
- •Suggested Grading Concepts and Grading Scheme:
- •Ifrs Case 15-10
Lease Amortization Schedule
Effective Decrease Outstanding Payments Interest in Balance Balance 12% x Outstanding Balance
128,872
1/1/11 36,000 36,000 92,872
12/31/11 36,000 .12 (92,872) = 11,145 24,855 68,017
12/31/12 36,000 .12 (68,017) = 8,162 27,838 40,179
12/31/13 45,000 .12 (40,179) = 4,821 40,179 0
153,000 24,128 128,872
Exercise 15-17 (concluded)
Requirement 3
January 1, 2011 Leased equipment (calculated above) 128,872 Lease payable (calculated above) 128,872 Lease payable 36,000 Cash(annual payment) 36,000 December 31, 2011 Depreciation expense ($128,872 ÷ 6 years*)21,479 Accumulated depreciation 21,479 Interest expense(12% x [$128,872 – 36,000]) 11,145 Lease payable (difference: from schedule) 24,855 Cash(annual payment) 36,000 December 31, 2012 Depreciation expense ($128,872 ÷ 6 years*)21,479 Accumulated depreciation 21,479 Interest expense(12% x $68,017: from schedule) 8,162 Lease payable (difference: from schedule) 27,838 Cash(annual payment) 36,000
December 31, 2013 Depreciation expense ($128,872 ÷ 6 years*)21,479 Accumulated depreciation 21,479 Interest expense(12% x $40,179: from schedule) 4,821 Lease payable (difference: from schedule) 40,179 Cash(BPO price) 45,000
* Because title passes with the expected exercise of the BPO, depreciation is for the entire six-year useful life of the asset. The depreciation entry will be recorded for three years after the completion of the lease term.
Exercise 15-18
Requirement 1
Amount to be recovered (fair value) $30,900 Less: Present value of the BPO price ($12,000 x .75131*) (9,016)
Amount to be recovered through periodic lease payments $21,884
_____________________
Lease payments at the beginning
each of three years: ($21,884 ÷ 2.73554**) $8,000
* present value of $1: n=3, i=10%
** present value of an annuity due of $1: n=3, i=10%
Requirement 2
Lease Amortization Schedule
Effective Decrease Outstanding Payments Interest in Balance Balance 10% x Outstanding Balance
30,900
1/1/11 8,000 8,000 22,900
12/31/11 8,000 .10 (22,900) = 2,290 5,710 17,190
12/31/12 8,000 .10 (17,190) = 1,719 6,281 10,909
12/31/13 12,000 .10 (10,909) = 1,091 10,909 0
36,000 5,100 30,900
Exercise 15-18 (concluded)
Requirement 3
January 1, 2011 Lease receivable (PV of lease payments + PV of BPO) 30,900
Inventory of equipment (lessor’s cost) 30,900 Cash(lease payment) 8,000 Lease receivable 8,000
December 31, 2011
Cash(lease payment) 8,000 Lease receivable (difference) 5,710 Interest revenue(10% x [$30,900 – 8,000]) 2,290
December 31, 2012
Cash(lease payment) 8,000 Lease receivable 6,281 Interest revenue(10% x $17,190: from schedule) 1,719
December 30, 2013
Cash(BPO price) 12,000 Lease receivable (account balance) 10,909
Interest revenue(10% x $10,909: from schedule) 1,091
Exercise 15-19
Requirement 1
January 1, 2011
Brand Services (Lessee) Leased equipment(present value of lease payments) 316,412 Lease payable (present value of lease payments) 316,412 Lease payable (payment less executory costs) 50,000 Maintenance expense (2011 fee) 5,000 Cash (annual payment) 55,000 NRC Credit (Lessor) Lease receivable (present value of lease payments) 316,412
Inventory of equipment (lessor’s cost) 316,412 Cash (annual payment) 55,000 Maintenance fee payable [or cash] 5,000 Lease receivable 50,000
Requirement 2
December 31, 2011
Brand Services (Lessee) Interest expense(12% x [$316,412 – 50,000]) 31,969 Lease payable (difference) 18,031 Prepaid maintenance (2012 fee) 5,000 Cash(lease payment) 55,000 Depreciation expense ($316,412 ÷ 10 years) 31,641 Accumulated depreciation 31,641 NRC Credit (Lessor) Cash(lease payment) 55,000 Lease receivable (difference) 18,031 Maintenance fee payable [or cash] 5,000 Interest revenue(12% x [$316,412 – 50,000]) 31,969
Exercise 15-20
December 31, 2011
Brand Services (Lessee) Interest expense(12% x [$316,412 – 50,000]) 31,969 Lease payable (difference) 18,031 Prepaid maintenance (2012 fees plus lessor profit) 5,950 Cash(lease payment) 55,950 Depreciation expense ($316,412 ÷ 10 years) 31,641 Accumulated depreciation 31,641 NRC Credit (Lessor) Cash(lease payment) 55,950 Lease receivable (to balance) 18,031 Maintenance fee payable 5,000 Insurance premium payable 700 Unearned miscellaneous revenue (2012 fee) 250 Interest revenue(12% x [$316,412 – 50,000]) 31,969
Exercise 15-21
Requirement 1
January 1
Cash 20,873 Unearned rent revenue* 20,873
Deferred initial direct cost 2,062 Cash 2,062
December 31
Unearned rent revenue 20,873 Rent revenue* 20,873 Lease expense ($2,062 ÷ 3 years) 687 Deferred initial direct cost 687 Depreciation expense ($100,000 ÷ 6 years) 16,667 Accumulated depreciation 16,667
* Alternatively, Rent revenue. Either way, an adjusting entry is needed at the end of the reporting period to assure that the earned portion of the payment is recorded in Rent revenue and the unearned portion in Unearned rent revenue
Requirement 2
January 1
Proof that new effective rate is 9% (not required):
$102,062 ÷ 4.88965** = $20,873
lessor’s lease net investment payments
** present value of an annuity due of $1: n=6, i=9%
Exercise 15-21 (concluded)
January 1
Lease receivable (fair value / present value) 100,000
Inventory of equipment (lessor’s cost) 100,000 Lease receivable 2,062 Cash (initial direct costs) 2,062 Cash(lease payment) 20,873 Lease receivable 20,873
December 31
Interest receivable 7,307 Interest revenue (9% x [$100,000 + 2,062 – 20,873]) 7,307
Requirement 3
January 1
Lease receivable (fair value / present value) 100,000
Cost of goods sold (lessor’s cost) 85,000 Sales revenue (fair value / present value) 100,000 Inventory of equipment (lessor’s cost) 85,000 Selling expense 2,062 Cash (initial direct costs) 2,062 Cash(lease payment) 20,873 Lease receivable 20,873
December 31
Interest receivable 7,913 Interest revenue (10% x [$100,000 – 20,873]) 7,913
Exercise 15-22
January 1, 2011, 2012, 2013
Cash 137,000 Rent revenue 137,000
Deferred initial direct cost 2,400 Cash 2,400
December 31, 2011, 2012, 2013
Lease expense ($2,400 ÷ 3 years) 800 Deferred initial direct cost 800 Depreciation expense ($800,000 ÷ 8 years) 100,000 Accumulated depreciation 100,000
Exercise 15-23