Question

Sondheim Ltd. entered into a finance lease with New Age Leasing Corp. The lease is for new specialized factory equipment that has a fair value of $2,786,000. The expected useful life of the equipment is 10 years, although its physical life is far greater. The initial lease term begins on 1 April 20X2 and runs for 10 years. Annual lease payments are $372,000, payable at the beginning of each lease year. After the initial lease term, Sondheim has the option of renewing the lease on a year-by-year basis for as long as Sondheim wishes. Since the equipment will be obsolete by that time, the renewal is set at $18,000 per year, which is expected to be a fair rental value for equipment of that age. Other information is as follows: (Round time value factor to 5 decimal places, intermediate calculations and final answers to the nearest whole dollar amount.)

• The interest rate implicit in the lease is 9%; Sondheim’s incremental borrowing rate is 8%.
• Sondheim will amortize the equipment on a straight-line basis over the lease term and has a 31 December fiscal year-end.

Required:
1. Prepare the journal entries relating to the lease liability and the leased equipment for Sondheim for 20X2, including all appropriate adjusting entries. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal Entries Required: below

1. record the commencement of lease.

2. Record the 1st lease payment.

3. Record the depreciation expense.

4. Record the interest expense.

2. What amounts will appear on Sondheim's SFP and SCF for the year ended 31 December 2012?

Statement of financial position:

Equipment under finance lease $__________

Accumulated depreciation - leased equipment $___________

Lease Liability - current $__________

Lease Liability - Long-term $_____________

Cash flow statement:

Operating activities, non-cash items add-backs:

Depreciation expense $_________

Interest Expense $___________

Financing activites - finance lease payment $______________

Answer 1

Answer

Answer 2

Current Liab should be 186093+139431