Brief Exercise 15-17
Income Statement:
Lease revenue (straight-line amount) ……………………… $25,000*
Journal entries (not required):
January 1, 2016
[No entry to record receivable or to derecognize asset]
December 31, 2016
Deferred lease revenue ……………………………………… 25,000
15–22 Intermediate Accounting, 8/e
Brief Exercise 15-18
Balance Sheet:
Lease Payable
Initial balance $158,373
Jan. 1, 2016 reduction (first lease payment) (25,000)
Right-of-Use Asset
Initial balance $158,373
Journal entries (not required):
January 1, 2016
Right-of-use asset ………………………………………… 158,373
December 31, 2016
Interest expense (10% x [$158,373 – 25,000]) ……….. 13,337
Brief Exercise 15-19
Lease Payable
Initial balance $158,373
Right-of-Use Asset
Initial balance $158,373
Journal entries (not required):
January 1, 2016
December 31, 2016
Interest expense (10% x [$158,373 – 25,000]) ……….. 13,337*
15–24 Intermediate Accounting, 8/e
Brief Exercise 15-20
The lease payable in the balance sheet will be $113,731:
Initial balance, January 1 (calculated below) …………. $140,000*
Brief Exercise 15-21
Pretax earnings will be reduced by $29,020 as calculated below:
January 1 interest expense ……………………………………. $ 0
Brief Exercise 15–22
The price at which the lessor is “selling” the asset being leased is the present
value of the lease payments:
$26,269 x 5.32948 = $140,000*
Journal entry (not required):
Lease receivable (present value) …………………………………. 140,000
15–26 Intermediate Accounting, 8/e
Brief Exercise 15-23
The amount of interest expense the lessee would record in conjunction with the
second quarterly payment on October 1 is $2,892:
Initial balance, July 1 (given) …………………………….. $150,000
Journal entries (not required):
July 1
Lease payable …………………………………………….. 5,376
Brief Exercise 15-24
A lease that has a lease term (including options to terminate or renew that are
reasonably certain) of twelve months or less is considered a “short-term
lease.”
15–28 Intermediate Accounting, 8/e
EXERCISES
Exercise 15-1
(a) Nath-Langstrom Services, Inc. (Lessee)
June 30, 2016
Rent expense ……………………………. 10,000
(b) ComputerWorld Corporation (Lessor)
June 30, 2016
Cash ………………………………………… 10,000
Exercise 15-2
January 1, 2016
Prepaid rent (advance payment) ………………….. 96,000
Cash …………………………………………………. 96,000
December 31, 2016
Rent expense (annual rent) ………………………… 80,000
15–30 Intermediate Accounting, 8/e
Exercise 15-3
Present Value of Minimum Lease Payments:
($15,000 x 7.47199*) = $112,080
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
112,080
1 15,000 15,000 97,080
January 1, 2016
Leased equipment (calculated above) ………………… 112,080
Exercise 15-3 (concluded)
April 1, 2016
Interest expense (2% x [$112,080 – 15,000]) …………. 1,942
Lease payable (difference) …………………………..…. 13,058
Cash (lease payment) ………………………………….. 15,000
July 1, 2016
Exercise 15-4
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
112,080
1 15,000 15,000 97,080
January 1, 2016
Lease receivable (fair value)……………………………. 112,080
April 1, 2016
Exercise 15-4 (concluded)
October 1, 2016
Cash (lease payment)………………………………………. 15,000
15–34 Intermediate Accounting, 8/e
Exercise 15-5
Requirement 1
Lessor’s Calculation of Lease Payments
Amount to be recovered (fair value) $112,080
Requirement 2
January 1, 2016
Lease receivable (fair value / present value) …………. 112,080
April 1, 2016
Exercise 15-6
Situation 1
Since none of the criteria is met, this is an operating lease to the lessee:
Lessee’s Application of Classification Criteria
1 Does the agreement specify that
ownership of the asset transfers
to the lessee? NO
Exercise 15-6 (continued)
Situation 2
Since at least one (two in this case: #2 and #3) classification criterion is met, this
is a capital lease.
Lessee’s Application of Classification Criteria
1 Does the agreement specify that
ownership of the asset transfers
Exercise 15-6 (continued)
Situation 3
Since at least one (#4 in this case) classification criterion is met, this is a capital
lease.
Lessee’s Application of Classification Criteria
1 Does the agreement specify that
ownership of the asset transfers
to the lessee? NO
15–38 Intermediate Accounting, 8/e
Exercise 15-6 (concluded)
Situation 4
Since at least one (#4 in this case) classification criterion is met, this is a capital
lease.
Lessee’s Application of Classification Criteria
1 Does the agreement specify that
ownership of the asset transfers
to the lessee? NO
Exercise 15-7
Requirement 1 January 1, 2016
Leased assets ………………………………………………. 4,000,000
Lease payable …………………………………………. 4,000,000
Requirement 2
Requirement 3 December 31, 2016
Requirement 4 December 31, 2018
15–40 Intermediate Accounting, 8/e
Exercise 15-8
1. Calculation of the present value of lease payments
2. Liability at December 31, 2016
Initial balance, June 30, 2016 ……………………………. $3,000,000
June 30, 2016 reduction ……………………………………. (562,907)*
3. Expenses for year ended December 31, 2016
June 30, 2016 interest expense …………………………... $ 0*
Calculations:
June 30, 2016*
Leased equipment (calculated in req. 1) ………………………. 3,000,000