The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Pharoah Electronics, a lessee, for a computer system. Commencement date   October 1, 2020   Lease term   6  years Economic life of leased equipment   6  years Fair value of asset at October 1, 2020   $262,056   Book value of asset at October 1, 2020   $280,000   Residual value at end of lease term   –0–   Lessor’s implicit rate   10 % Lessee’s incremental borrowing rate   10 % Annual lease payment due at the beginning of          each year, beginning with October 1, 2020   $54,700   The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor. Date   Lease Payment/Receipt   Interest (10%) on Unpaid Liability/Receivable   Reduction of Lease Liability/Receivable   Balance of Lease Liability/Receivable 10/01/20               $262,056 10/01/20   $54,700       $54,700   207,356 10/01/21   54,700   $20,736   33,964   173,392 10/01/22   54,700   17,339   37,361   136,031 10/01/23   54,700   13,603   41,097   94,934 10/01/24   54,700   9,493   45,207   49,727 10/01/25   54,700   4,973   49,727   –0–     $328,200   $66,144   $262,056   Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2020? Interest Expense   $ Amortization Expense $ (2) What items and amounts will appear on the lessee’s balance sheet at December 31, 2020? Balance Sheet (Partial)  December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020 Current Liabilities:                   $         Long-term Liabilities:                   $         Non-current Assets:                   $     (3) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2021? Interest Expense   $ Amortization Expense  $ (4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2021? Balance Sheet (Partial)  December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021 Current Liabilities:                   $         Long-term Liabilities:                   $         Non-current Assets:                   $

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 3E: Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides...
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The following facts pertain to a non-cancelable lease agreement between Alschuler Leasing Company and Pharoah Electronics, a lessee, for a computer system.

Commencement date   October 1, 2020  
Lease term   6  years
Economic life of leased equipment   6  years
Fair value of asset at October 1, 2020   $262,056  
Book value of asset at October 1, 2020   $280,000  
Residual value at end of lease term   –0–  
Lessor’s implicit rate   10 %
Lessee’s incremental borrowing rate   10 %
Annual lease payment due at the beginning of      
   each year, beginning with October 1, 2020   $54,700  


The collectibility of the lease payments is probable by the lessor. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a finance lease by the lessee and as a sales-type lease by the lessor.

Date
 
Lease
Payment/Receipt
 
Interest (10%) on Unpaid
Liability/Receivable
 
Reduction of Lease
Liability/Receivable
 
Balance of Lease
Liability/Receivable
10/01/20              
$262,056
10/01/20  
$54,700
     
$54,700
 
207,356
10/01/21  
54,700
 
$20,736
 
33,964
 
173,392
10/01/22  
54,700
 
17,339
 
37,361
 
136,031
10/01/23  
54,700
 
13,603
 
41,097
 
94,934
10/01/24  
54,700
 
9,493
 
45,207
 
49,727
10/01/25  
54,700
 
4,973
 
49,727
 
–0–
   
$328,200
 
$66,144
 
$262,056
 

Assuming the lessee’s accounting period ends on December 31, answer the following questions with respect to this lease agreement.

(1) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2020?

Interest Expense   $

Amortization Expense $

(2) What items and amounts will appear on the lessee’s balance sheet at December 31, 2020?

Balance Sheet (Partial)
 December 31, 2020For the Year Ended December 31, 2020For the Quarter Ended December 31, 2020
Current Liabilities:
           
 
   
$
 
     
Long-term Liabilities:
           
 
   
$
 
     
Non-current Assets:
           
 
   
$
 
 

(3) What items and amounts will appear on the lessee’s income statement for the year ending December 31, 2021?

Interest Expense   $

Amortization Expense  $

(4) What items and amounts will appear on the lessee’s balance sheet at December 31, 2021?

Balance Sheet (Partial)
 December 31, 2021For the Year Ended December 31, 2021For the Quarter Ended December 31, 2021
Current Liabilities:
           
 
   
$
 
     
Long-term Liabilities:
           
 
   
$
 
     
Non-current Assets:
           
 
   
$
 

 

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