Question

Vator 10 puntos) agreement for equipment. Annual payments are 1, 2017, XYZ Company signed an 8-year lease 1 2017 XYZ Company signed an of equipment. Annual payments are $28 500 to be made at the beginning of year. At the end of the lease the inment will revert to the lessor. The equipment has a useful life of 8 years and has no sul life of 8 years and has no residual value. At the time of the lease agreement equipment has a fair value of $165.000 An interest rate of 10.5% ($14,332) and straight-line depreciation are used. Step 1: Identify the type of lease (Capital or Operating Lease) Conclusion: Step 2: Journal entries January 1, 2017 December 31, 2017 1-Depreciation Expense 2-Interest Expense GENERAL JOURNAL PAGE 1 DATE DEBIT DESCRIPTION CREDIT

Answer 1

Step-1: Identify the type of lease Capital lease: • In capital lease lessee has the option to purchase the equipment at the end of the lease period The lease term should be more than 75% of the useful life Present value of the lease payments is greater than or equal to 90% assets fair value Present value of minimum lease payments = $164,995 Operating lease: • In case of operating lease there is no option for purchase of the equipment by lessee at the end of the period In the above situation the lease period and the asset life is same and the PV of lease payments is more than 90% of the fair value of the assets the above lease is Capital lease.

Step-2 Journalise the following transactions: General Journal Date PR | Credit ($) Debit ($) 1,64,995 Description Leased asset Lease liability to record the lease liability 164995 January 1, 2017 28,500 Lease rent Cash 28500 December 31, 2017 14168 Lease liability Interest expense Lease rent 14332 28500 December 31,2017 16,600 Depreciation expense Accumulated depreciation 16,600