Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,616, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet? No b. What account will indicate that lease payments have been made? Lease expense 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when the lease is signed. Activity Investing and Financing Accounts Leased Asset Increase, Lease Obligation Increase Statement(s) Balance Sheet only 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. Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income Explain why the value of the leased asset is not recorded at $6,464 ($1,616 x 4). The leased asset should be reported at the of the payments which are $, not at $ b. Identify and analyze the effect of the first lease payment on December 31, 2017. Activity Operating and Financing Accounts Cash Decrease, Lease Obligation Decrease, Interest Expense Increase Statement(s) Balance Sheet and Income Statement 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. Balance Sheet Income Statement Stockholders' Net Assets = Liabilities + Equity Revenues – Expenses = Income c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar. $ d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar. Current liability portion $ Long-term liability portion $
Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,616, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017.
PV of Annuity of $1Required:
Refer to the table above for present value factors.
1. Assume that the lease is treated as an operating lease.
a. Will the value of the forklift appear on Koffman's balance sheet?
No
b. What account will indicate that lease payments have been made?
Lease expense
2. Assume that the lease is treated as a capital lease or finance lease.
a. Identify and analyze the effect when the lease is signed.
| Activity | Investing and Financing |
| Accounts | Leased Asset Increase, Lease Obligation Increase |
| Statement(s) | Balance Sheet only |
How does this entry affect the
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.
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
Explain why the value of the leased asset is not recorded at $6,464 ($1,616 x 4). The leased asset should be reported at the of the payments which are $, not at $
b. Identify and analyze the effect of the first lease payment on December 31, 2017.
| Activity | Operating and Financing |
| Accounts | Cash Decrease, Lease Obligation Decrease, Interest Expense Increase |
| Statement(s) | Balance Sheet and Income Statement |
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.
| Balance Sheet | Income Statement | |||||||||
| Stockholders' | Net | |||||||||
| Assets | = | Liabilities | + | Equity | Revenues | – | Expenses | = | Income | |
c. Calculate the amount of
$
d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar.
| Current liability portion | $ |
| Long-term liability portion | $ |
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