TABLE 19-1Financial Reporting for LeasesPart 1: Preliminary CalculationsYear 0Year 1Year 2Year 3Lease liability balance$26,730$18,334$9,434$0Imputed interest expense$1,604$1,100$566Lease payment$10,000$10,000$10,000Part 2: Reporting an Operating LeaseYear 0Year 1Year 2Year 3Lease liability balance$26,730$18,334$9,434$0Right-of-use asset balance$26,730$18,334$9,434$0Lease expense"$10,000$10,000$10,000Part 3: Reporting a Finance LeaseYear 0Year 1Year 2Year 3Lease liability balance$26,730$18,334$9,434$0Right-of-use asset balance$26,730$17,820$8,910$0Interest expense$1,604$1,100$566Amortization expense$8,910$8,910$8.910Total lease expense$10,514$10,010$9,476Notes:The lease liablity in Year O is equal to the initial lease ltability. For subsequent years, the lease liability balance is equal to the previousbalance plus the imputed interest minus the lease payment.The imputed Interest for the end of Year t is equal to the cost of debt (r) multiplied by the lease lability payment at the beginning of Year t.The right-of-use asset balance for an operating lease is equal to the lease lability balance.*The lease expense for an operating lease is equal to the lease payment."The right-of-use balance for a finance lease is equal to the previous balance minus the amortization expense.The Interest expense for a finance lease is equal to the imputed Interest.SThe amortization expense for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease. Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5years even though the compressor's economic life is long enough so that the lease is an operating lease. The firmcan lease the compressor for 5 years with $40,000 lease payments at the end of each year. HPB's cost of debt is11%. Answer the following questions. (Hint: See Table 19-1.)a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediatecalculations. Round your answer to the nearest cent. Enter your answer as a positive value.$b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearestcent.$c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer asa positive value.2$d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to thenearest cent. Enter your answer as a positive value.e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer tothe nearest cent. Enter your answer as a positive value.$f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answerto the nearest cent.$

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Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $40,000 lease payments at the end of each year. HPB's cost of debt is 11%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. 2$

Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $40,000 lease payments at the end of each year. HPB's cost of debt is 11%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. 2$

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 2P

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Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $40,000 lease payments at the end of each year. HPB's cost of debt is 11%. Answer the following questions.
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