Chapter 21 Solutions-Intermediate Accounting Essay example

6911 Words Nov 3rd, 2014 28 Pages
CHAPTER 21
Accounting for Leases SOLUTIONS TO EXERCISES
EXERCISE 21-1 (15–20 minutes) (a) This is a capital lease to Adams since the lease term (5 years) is greater than 75% of the economic life (6 years) of the leased asset. The lease term is 831/3% (5 ÷ 6) of the asset’s economic life. (b) Computation of present value of minimum lease payments: $9,968 X 4.16986* = $41,565 *Present value of an annuity due of 1 for 5 periods at 10%. (c) 1/1/12 Leased Equipment................................... Lease Liability.................................. Lease Liability.......................................... Cash................................................... 12/31/12 Depreciation Expense............................. Accumulated
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$10,515 (c) Leased Equipment....................................................... Lease Liability....................................................... (d) Depreciation Expense................................................. Accumulated Depreciation—Capital Leases................................................................ [($10,515 – $1,180) ÷ 50 months = $186.70] (e) Lease Liability.............................................................. Interest Expense (1% X $10,515)................................ Cash....................................................................... 10,515 10,515 186.70 186.70

144.85 105.15 250.00

EXERCISE 21-3 (20–30 minutes) Capitalized amount of the lease: Yearly payment........................................................... Executory costs.......................................................... Minimum annual lease payment................................

$90,000 (3,088) $86,912

21-2

EXERCISE 21-3 (Continued) Present value of minimum lease payments $86,911.86 X 6.32825 = $550,000.00 1/1/13 Leased Buildings............................................. Lease Liability.......................................... Executory Costs................................................ Lease Liability.................................................. Cash........................................................... Depreciation Expense..................................... Accumulated

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