The Harris Company is the lessee on a four-year lease with the following payments at the...
The Harris Company is the lessee on a four-year lease with the
following payments at the end of each year:
| Year 1: | $ | 15,500 |
| Year 2: | $ | 20,500 |
| Year 3: | $ | 25,500 |
| Year 4: | $ | 30,500 |
An appropriate discount rate is 7 percentage, yielding a present
value of $76,475.
a-1. If the lease is an operating lease, what will
be the initial value of the right-of-use asset?
a-2. If the lease is an operating lease, what will
be the initial value of the lease liability?
a-3. If the lease is an operating lease, what will
be the lease expense shown on the income statement at the end of
year 1?
a-4. If the lease is an operating lease, what will
be the interest expense shown on the income statement at the end of
year 1? (Leave no cells blank – be certain to enter “0”
wherever required.)
a-5. If the lease is an operating lease, what will
be the amortization expense shown on the income statement at the
end of year 1? (Leave no cells blank – be certain to enter
“0” wherever required.)
b-1. If the lease is a finance lease, what will be
the initial value of the right-of-use asset?
b-2. If the lease is a finance lease, what will be
the initial value of the lease liability?
b-3. If the lease is a finance lease, what will be
the lease expense shown on the income statement at the end of year
1? (Leave no cells blank – be certain to enter “0” wherever
required.)
b-4. If the lease is a finance lease, what will be
the interest expense shown on the income statement at the end of
year 1? (Round your answer to the nearest dollar
amount.)
b-5. If the lease is a finance lease, what will be
the amortization expense shown on the income statement at the end
of year 1? (Round your answer to the nearest dollar
amount.)
Homework Answers
| Sl No. | Questions | Answers | Calculations |
| a-1 | If the lease is an operating lease, the initial value of the right-of-use asset | $ 76475 | PV of lease |
| a-2 | If the lease is an operating lease, the initial value of the lease liability | $ 76476 | PV of lease |
| a-3 | If the lease is an operating lease, the lease expense shown on the income statement at the end of year 1 | $23000 | |
| a-4 | If the lease is an operating lease, the interest expense shown on the income statement at the end of year 1 | $ 0 | |
| a-5 | If the lease is an operating lease, the amortization expense shown on the income statement at the end of year 1 | $ 0 | |
| b-1 | If the lease is a finance lease, the initial value of the right-of-use asset | $76,475.00 | |
| b-2 | If the lease is a finance lease, the initial value of the lease liability | $76,475.00 | |
| b-3 | If the lease is a finance lease, the lease expense shown on the income statement at the end of year 1 | $ 0 | |
| b-4 | If the lease is a finance lease, the interest expense shown on the income statement at the end of year 1 | $ 5,353.00 | =76475*7% |
| b-5 | If the lease is a finance lease, the amortization expense shown on the income statement at the end of year 1 | $19,119.00 | $ 76475 / 4 years |
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