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PROBLEM J-2A
(a) Carson Enterprises should record the Logan Co. lease as a capital
Both the Porter Inc. and Schell Inc. leases should be reported as
operating leases because none of the four conditions is met to
require treatment as a capital lease.
(b) The Logan Co. lease is a capital lease. The entry to record the capital
(c) The Porter Inc. lease is an operating lease. The entry to record the
lease payment in 2015, therefore is as follows:
PROBLEM J-1B
(a)
Jan. 5
Cash .........................................................
17,496
Sales Revenue ($17,496 ÷ 108%) ....
16,200
Sales Taxes Payable
($17,496 – $16,200) .....................
1,296
12
Unearned Service Revenue ....................
10,000
Service Revenue ..............................
10,000
14
Sales Taxes Payable ...............................
7,700
Cash .................................................
7,700
20
Accounts Receivable ..............................
32,400
Sales Revenue .................................
30,000
Sales Taxes Payable
(600 X $50 X 8%) .........................
2,400
21
Cash .........................................................
18,000
Notes Payable ..................................
18,000
25
Cash .........................................................
12,420
Sales Revenue ($12,420 ÷ 108%) ....
11,500
Sales Taxes Payable
($12,420 – $11,500) .....................
920
(b)
(1) Jan. 31
Interest Expense .............................
30
Interest Payable ........................
30
($18,000 X 6% X 1/12 =
$90; $90 X 1/3)
(2) Jan. 31
Warranty Expense...........................
2,100
Warranty
Liability ($30,000 X 7%) .........
2,100
PROBLEM J-1B (Continued)
(c)
Current liabilities
Notes payable ........................................................................
$18,000
Accounts payable ................................................................
52,000
Unearned service revenue ($16,000 – $10,000) ...................
6,000
Sales taxes payable ($1,296 + $2,400 + $920) ......................
4,616
Warranty liability ................................................................
2,100
Interest payable .....................................................................
30
Total current liabilities ...................................................
$82,746
PROBLEM J-2B
(a) Nance Inc. should record the Dodge Delivery lease as a capital lease
capitalization.
Both the Gannon Co. and Jens Auto leases should be reported as
Rent Expense ...................................................... 4,200
Cash ............................................................... 4,200
(c) The Dodge Delivery lease is a capital lease. The entry to record the
Leased Asset—Equipment ................................. 38,000
BYP J-1 FINANCIAL REPORTING PROBLEM
(a) At September 24, 2011, Apple’s total long-term liabilities were
BYP J-2 FINANCIAL REPORTING PROBLEM
BYP J-3 GROUP DECISION CASE
Also, the company’s liquidity position is quite low. With only $800,000
1. The lease transfers ownership of the property to the lessee.
2. The lease contains a bargain purchase option.
leased property.
4. The present value of the lease payments equals or exceeds 90% of
the fair value of the leased property.
value.
(c) Alexis Long means that many companies use leasing as a means of
this asset on its balance sheet. Most lessees do not like to report
leases on their balance sheets. The primary reason for this is the lease
lenders.
