Alternate Exercises and Problems 15–1
Chapter 15 Leases
EXERCISES
Exercise 15-1
(a) Gothic Corporation (Lessee)
June 30, 2016
Rent expense …………………………….. 40,000
(b) HardWhere (Lessor)
June 30, 2016
15–2 Intermediate Accounting, 8/e
Exercise 15-2
Present Value of Minimum Lease Payments:
($10,000 x 10.78685*) = $107,866
lease present
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
107,866
1 10,000 10,000 97,886
2 10,000 .02 (97,886) = 1,957 8,043 89,823
3 10,000 .02 (89,823) = 1,796 8,204 81,619
Alternate Exercises and Problems 15–3
Exercise 15-2 (concluded)
January 1, 2016
Leased equipment (calculated above) ………………… 107,866
Lease payable (calculated above) ………………….. 107,866
April 1, 2016
Interest expense (2% x [$107,866 – 10,000]) …………. 1,957
Exercise 15-3
Lease Amortization Schedule
Lease Effective Decrease Outstanding
Payments Interest in Balance Balance
2% x Outstanding Balance
107,866
1 10,000 10,000 97,886
2 10,000 .02 (97,886) = 1,957 8,043 89,823
Alternate Exercises and Problems 15–5
Exercise 15-3 (concluded)
January 1, 2016
Lease receivable (present value of lease payments) .. 107,866
Inventory of equipment (lessor’s cost) ………….. 107,866
April 1, 2016
Cash (lease payment)………………………………………. 10,000
15–6 Intermediate Accounting, 8/e
Exercise 15-4
Requirement 1
Lessor’s Calculation of Lease Payments
Amount to be recovered (fair value) $107,866
Requirement 2
January 1, 2016
Lease receivable (fair value) …………………………... 107,866
April 1, 2016
Cash (lease payment) ………………………………………. 10,000
Alternate Exercises and Problems 15–7
Exercise 15-5
Present value of periodic lease payments*
($205,542 x 7.49236**) $1,540,000
January 1, 2016
Cash (given) …………………………………………………………… 1,540,000
Helicopter (book value) …………………………………………. 1,240,000
December 31, 2016
Interest expense (11% x [$1,540,000 – 205,542]) ……………….. 146,790
Interest payable …………………………………………………. 146,790
PROBLEMS
Problem 15-1
Requirement 1
Capital lease to lessee; Direct financing lease to lessor.
Since the present value of minimum lease payments (same for both the
lessor and the lessee) is equal to (>90%) the fair value of the asset, the
90% recovery criterion is met.
Calculation of the Present Value of Minimum Lease Payments
Requirement 2
Pal Learning Systems (Lessee)
January 1, 2016
Leased equipment (calculated above) …………………………... 500,000
April 1, 2016
Interest expense (3% x [$500,000 – 32,629]) ……………………… 14,021
Alternate Exercises and Problems 15–9
Problem 15-1 (concluded)
Star Leasing (Lessor)
January 1, 2016
Lease receivable (present value) …………………………..…….. 652,580
Inventory of equipment (lessor’s cost) …………………….. 500,000
Requirement 3
Star Leasing (Lessor)
January 1, 2016
Lease receivable (present value) …………………………..…….. 500,000
15–10 Intermediate Accounting, 8/e
Problem 15-2
Requirement 1
Lessor’s Calculation of Lease Payments
Amount to be recovered (fair value) $1,097,280
Less: Present value of the guaranteed
Requirement 2
The lessee’s incremental borrowing rate (12%) is more than the lessor’s
Alternate Exercises and Problems 15–11
Problem 15-2 (continued)
Application of Classification Criteria
1 Does the agreement specify that
ownership of the asset transfers
to the lessee? NO
Present Value of Minimum Lease Payments
Present value of periodic lease payments
($300,000 x 3.48685**) $1,046,055
Problem 15-2 (continued)
(a) By Blair Co. (the lessee)
Since at least one criterion is met, this is a capital lease to the lessee.
Blair records the present value of minimum lease payments as a leased
Requirement 3
December 31, 2016
Blair Co. (Lessee)
Leased equipment (calculated above) …………………………... 1,097,280
Lease payable (calculated above) …………………………….. 1,097,280
Alternate Exercises and Problems 15–13
Problem 15-2 (continued)
Requirement 4
Since both use the same discount rate and since the residual value is
lessee-guaranteed, the same amortization schedule applies to both the lessee
and lessor:
Lease Amortization Schedule
Effective Decrease Outstanding
Dec. Payments Interest in Balance Balance
31 10% x Outstanding Balance
2016 1,097,280
Requirement 5
December 31, 2020
Blair Co. (Lessee)
Interest expense (10% x [$1,097,280 – 300,000]) ……………….. 79,728
15–14 Intermediate Accounting, 8/e
Problem 15-2 (concluded)
Requirement 6
December 31, 2018
Blair Co. (Lessee)
Depreciation expense ([$1,097,280 – 75,000] ÷ 4 years) ……. 255,570
Accumulated depreciation …………………………………… 255,570