Brief Exercise 15-1
The present value of the lease payments is greater than “substantially all” of the
Brief Exercise 15-2
The lease is a finance lease to Athens because the present value of the lease
BRIEF Exercises
Brief Exercise 15-3
The amount of interest expense the lessee would record in conjunction with
the second quarterly payment at October 1 is $2,892:
Journal entries (not required):
July 1
………………………………………………Lease payable
……………………………………….Cash (lease payment)
Oct. 1
……………………………………….Cash (lease payment)
The amount of interest revenue the lessor would record in conjunction with
Brief Exercise 15-4
The lease liability in the balance sheet will be $113,731:
(rounded)
The liability for interest on the lease payable in the balance sheet will be
$5,687:
Brief Exercise 15-5
The lessee’s income statement will report an decrease of $29,020 as calculated
below:
January 1 interest expense…………………………………….. $ 0
(rounded)
present value of an annuity due of $1: n=6, i=5%
Brief Exercise 15-6
below:
January 1 interest revenue…………………………………….. $ 0
(rounded)
Brief Exercise 15-7
fair lease
value payments
** present value of an annuity due of $1: n=20, i=2%
Brief Exercise 15-8
Because none of the classification criteria is met, this is an operating lease.
Accordingly, LTT will record a right-of-use asset and lease liability for the present
Brief Exercise 15-9
Because none of the five classification criteria is met, this is an operating lease.
Accordingly, Lakeside will record rent revenue for each of the four $25,000
Brief Exercise 15-10
A lease that has a lease term (including options to terminate or renew that
A lessee that has a short-term lease has the option to not record the
Journal entries (not required):
Beginning of lease
No entry
End of each of 8 months
Brief Exercise 15-11
The lease term consists of ten years plus two renewal years, or 12 years,
Brief Exercise 15–12
If the amounts of future lease payments are uncertain due to contingencies or
otherwise, we don’t consider them as part of the lease payments.
There are two exceptions to not including variable payments when recording
the lease. One is when apparent “variable” payments actually are fixed payments in
the amount of the payments based on the index or rate at the beginning of the lease
are initially included in the calculation of the right-of-use asset and liability. How-
Brief Exercise 15-13
A purchase option is a provision in a lease contract that gives the lessee the
option of purchasing the leased property at a specified exercise price. If that price
Also, the exercise price would be part of the lease payments for both the lessee
Amount to be recovered (fair value) $600,000
Brief Exercise 15-14
Amount to be recovered (fair value) $700,000
* present value of $1: n=4, i=5%
** present value of an ordinary annuity of $1: n=4, i=5%
When the lessor gets a lease asset back at the end of the lease
term, the value of the asset itself, which at the beginning of the lease
Brief Exercise 15–15
If a cash payment under a lessee-guaranteed residual value is predicted, the
present value of that payment is added to the present value of the lease payments
Amount to be added to the right-of-use asset and lease liability:
** Present value of $1: n = 4, i = 5%
Brief Exercise 15-16
In a sales-type lease that includes selling profit, initial direct costs are
The lessor’s earnings will be increased by $91,868 as calculated below:
January 1 interest revenue…………………………………….. $
0
…………………………………………………………Sales revenue 600,000
Journal entries (not required):
Beginning of the Lease, January 1
Lease receivable (fair value)……………………………………… 600,000
December 31
Brief Exercise 15-17
Jasperse is receiving two separate benefits in the lease contract (1) the right to
use equipment and (2) maintenance on that equipment. So, payments specified in
the lease contract contain a separate lease component (use of equipment for
$75,000) and a nonlease component (maintenance of $5,000). The payment for
At the beginning of the lease, Jasperse records a right-of-use asset and lease
Journal entries (not required):
January 1