Explain why the value of the leased asset is not recorded at $5,176 ($1,294 x 4). The leased asset should be reported at the of the payments, which is $, and not at $
Explain why the value of the leased asset is not recorded at $5,176 ($1,294 x 4). The leased asset should be reported at the of the payments, which is $, and not at $
Chapter5: Completing The Accounting Cycle
Section: Chapter Questions
Problem 1PA: Identify whether each of the following accounts would be considered a permanent account (yes/no) and...
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Explain why the value of the leased asset is not recorded at $5,176 ($1,294 x 4). The leased asset should be reported at the of the payments, which is $, and not at $
Identify and analyze the transaction by using the following steps:
1. Determine activity – operating, investing or financing.
2. Determine accounts affected and the amount of increases/decreases.
3. Determine the financial statements affected – balance sheet, income statement.
The
Determine amortization using the effective interest method (see Exhibit 10-7 below for an example).
Date | Column 1 Lease Payment |
Column 2 Interest Expense |
Column 3 Reduction of Obligation |
Column 4 Lease Obligation |
8% | Col. 1 - Col. 2 | |||
1/1/2017 | - | - | - | $15,972 |
12/31/2017 | $4,000 | $1,278 | $2,722 | 13,250 |
12/31/2018 | 4,000 | 1,060 | 2,940 | 10,310 |
12/31/2019 | 4,000 | 825 | 3,175 | 7,135 |
12/31/2020 | 4,000 | 571 | 3,429 | 3,706 |
12/31/2021 | 4,000 | 294 | 3,706 | 0 |
Column 1 is the total amount of the payment. To compute the interest expense, (column 2) multiply the lease obligation (column 4) by the interest rate. Column 3, the reduction of obligation is computed by subtracting Column 2 from column 1. Column 4 starts as the present value of the lease obligation. The amount then reduces this column in column 3.
How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e., a decrease, be sure to enter the answer with a minus sign—round answers to the nearest whole dollar.
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