Chapter 10 – Reporting and Analyzing Long-Term Liabilities
Problem 10-11AD (35 minutes)
Part 1
Present Value of the Lease Payments
$10,000 x 3.9927 (from Table B.3) = $39,927
Part 2
Leased Asset—Office Equipment ……………………….….
39,927
Lease Liability ………………………………………………….
39,927
To record capital lease of office equipment.
Part 3
Capital Lease Liability Payment (Amortization) Schedule
Period
Ending
Date
Beginning
Balance of
Lease
Liability
Interest on
Lease
Liability
(8%)
Reduction
of Lease
Liability
Cash
Lease
Payment
Ending
Balance of
Lease
Liability
Year 1
$39,927
$ 3,194*
$ 6,806
$ 10,000
$33,121
Year 2
33,121
2,650
7,350
10,000
25,771
Year 3
25,771
2,062
7,938
10,000
17,883
Year 4
17,833
1,427
8,573
10,000
9,260
Year 5
9,260
740**
9,260
10,000
0
$10,073
$39,927
$ 50,000
* Rounded to nearest dollar.
** Difference due to rounding.
Part 4
Depreciation Expense—Leased Asset, Off. Equip ……………….
7,985
Accum. Depreciation—Leased Asset, Off. Equip ……..…….
7,985
To record depreciation ($39,927 / 5 years).
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Financial Accounting, 7th Edition
42
Problem 10-1B (50 minutes)
Part 1
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.6139
$90,000
$55,251
Interest (annuity) ….
B.3
7.7217
5,400**
41,697
Price of bonds ……..
$96,948
Bond Premium ……..
$ 6,948
* Table values are based on a discount rate of 5% (half the annual market rate) and 10
periods (semiannual payments).
** $90,000 x 0.12 x ½ = $5,400
b.
2013
Jan. 1
Cash ……………………………………………………....
96,948
Premium on Bonds Payable ……………..……………
6,948
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
Part 2
a.
Cash Flow
Table
Table Value*
Amount
Present Value
Par value ……………..
B.1
0.5584
$90,000
$50,256
Interest (annuity) ….
B.3
7.3601
5,400
39,745
Price of bonds ……..
$90,001**
* Table values are based on a discount rate of 6% (half the annual market rate) and
10 periods (semiannual payments). (Note: When the contract rate and market
rate are the same, the bonds sell at par and there is no discount or premium.)
**Difference due to rounding
b.
2013
Jan. 1
Cash ……………………………………………………....
90,000
Bonds Payable …………………………………………………
90,000
Sold bonds on stated issue date.
