On January 1, Moran Inc. entered into a noncancelable 10 -year lease for computer equipment with a fair value of $120 million and requiring annual $16.304 milion year-end lease payments. The company’s year-end is December 31. The implicit interest rate is 6%. Required 1. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1? Note: Use Excel and round to the nearest million (i.e. show 128.543 as 129) A Finance lease asset and a finance lease liability will be capitalized on t
Lease Accounting.
On January 1, Moran Inc. entered into a noncancelable 10 -year lease for computer equipment with a fair value of $120 million and requiring annual $16.304 milion year-end lease payments. The company’s year-end is December 31. The implicit interest rate is 6%.
Required
1. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1?
Note: Use Excel and round to the nearest million (i.e. show 128.543 as 129)
A Finance lease asset and a finance lease liability will be capitalized on the balance sheet for: $Answer million.
2. Assuming that the lease is accounted for as a finance lease, what financial effects will be recorded with regard to the lease on December 31 (at the end of the first year)?
Note: Round all entries to three decimal points. Use rounded amounts in any further calculations.
| Item | Increase/Decrease | ||
|---|---|---|---|
| Cash | million | ||
| Interest expense | million | ||
| Lease obligation | million | ||
| Amortization expense | million | ||
| Leased asset | million |
3. What are the total expenses associated with the lease in the second year if it is accounted for as an operating lease? As a finance lease?
Note: Round all entries to three decimal points.
| Expense Item (millions) | Operating Lease | Finance Lease |
|---|---|---|
| Operating lease expense | ||
| Interest expense | ||
| Amortization expense | ||
| Total |
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
