Question

Problem 21-5 The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date Lease term Economic life of leased equipment Fair value of asset at October 1, 2017 Residual value at end of lease term Lessor's implicit rate Lessee's incremental borrowing rate Annual lease payment due at the beginning of October 1, 2017 6 years 6 years $300,383 10% 10% each year, beginning with October 1, 2017 $62,700 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to s5,500 per year and are to be paid each October 1, beginning October 1, 2017. (This $5,500 is not included in the rental payment of $62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-financing lease by the lessor. Annual Lease Interest (10%) on Unpaid Reduction of Lease Balance of Lease Date Payment/Receipt Libility/Receivable Liability/Receivable Liability/Receivable $300,383 237,683 198,751 155,926 108,819 57,001 10/01/17 10/01/17 10/01/18 10/01/19 10/01/20 10/01/21 10/01/22 $62,700 62,700 62,700 62,700 62,700 62,700 $376,200 $62,700 38,932 42,825 47,107 51,818 57,001 $300,383 $23,768 19,875 15,593 10,882 5,699 $75,817 Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g. 58,971.) (1) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2018? 5942Interest Expense (2) What items and amounts will appear on the lessor's balance sheet at September 30, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2019? (4) What items and amounts will appear on the lessor's balance sheet at September 30, 2019? Balance Sheet (Partial) Current Assets [자 Noncurrent Assets Your answer is incorrect. Try again Assuming the lessor's accounting period ends on December 31, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places e.g. 58,9 (1) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2017? (2) What items and amounts will appear on the lessor's balance sheet at December 31, 2017? Balance Sheet (Partial) Current Assets Noncurrent Assets (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? (4) What items and amounts will appear on the lessor's balance sheet at December 31, 2018? Balance Sheet (Partial) Current Assets Noncurrent Assets

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Answer

(a) Assuming the lessor's accounting period ends on September 30, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2018? 23,768 From above table Interest revenue (2) What items and amounts will appear on the lessor's balance sheet at September 30, 2018? Current assets 38,932 From above table 23,768 From above table Lease receivable nterest receivable Noncurrent assets Lease receivable S 198,751 From above table (3) What items and amounts will appear on the lessor's income statement for the year ending September 30, 2019? $ 19,875 From above table Interest revenue (4) What items and amounts will appear on the lessor's balance sheet at September 30, 2019? Current assets: S 42,825 From above table 19,875 From above table Lease receivable Interest receivable Noncurrent assets: Lease receivable S 155,926 From above table

(b) Assuming the lessor's accounting period ends on December 31, answer the following questions with respect to this lease agreement. (1) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2017? 5,942 =$23,768"(3/12) Interest revenue (2) What items and amounts will appear on the lessor's balance sheet at December 31, 2017? Current assets 38,932 From above table 5.942 |#523768"(3/12) Lease receivable Interest receivable Noncurrent assets Lease receivable S 198,751 From above table (3) What items and amounts will appear on the lessor's income statement for the year ending December 31, 2018? Interest revenue 22,795 (23,768-5,942)+(19,875 (3/12)) (4) What items and amounts will appear on the lessor's balance sheet at December 31, 2018? Current assets: Lease receivable Interest receivable 42,825 From above table 4,969 -19,875 (3/12) Noncurrent assets: Lease receivable S 155,926 From above table