Week 7 Homework

Week7HomeworkSolutions
ExercisesE151,E153,E154,E155,E158
Exercise151
(a) Nath-Langstrom Services, Inc. (Lessee)
June 30, 2013
Rent expense...................................
Cash ............................................
10,000
December 31, 2013

Rent expense...................................
Cash ............................................
10,000
10,000
10,000
(b) ComputerWorld Corporation (Lessor)

June 30, 2013
Cash................................................
Rent revenue...............................
10,000
December 31, 2013

Cash................................................
Rent revenue...............................
10,000
10,000
10,000
Depreciation expense ($90,000 6 years) 15,000

Accumulated depreciation..........
15,000
The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15
Exercise153
Present Value of Minimum Lease Payments:

($15,000x7.47199*) = $112,080
lease
present
payments
value
*presentvalueofanannuitydueof$1:n=8,i=2%
[i=2%(8%4)becausethelease
callsforquarterlypayments]
Lease Amortization Schedule

Lease
Payments
1
2
3
4
5
6
7
15,000
15,000
15,000
15,000
15,000
15,000
15,000
Effective
Interest
2%xOutstandingBalance
.02
.02
.02
.02
.02
.02
(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
=
=
=
=
=
=
Decrease
inBalance
1,942
1,680
1,414
1,142
865
582
15,000
13,058
13,320
13,586
13,858
14,135
14,418
Outstanding
Balance
112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705
15,000
120,000
.02 (14,705) =
295*
7,920
14,705
112,080
*adjustedforroundingofothernumbersintheschedule
January1,2013
Leasedequipment(calculatedabove).....................
Leasepayable(calculatedabove)........................
Leasepayable.....................................................
Cash(leasepayment)..........................................
112,080
112,080
15,000
15,000
Exercise153(concluded)
April1,2013
Interestexpense(2%x[$112,08015,000])..............
Leasepayable(difference).....................................
1,942
13,058
July1,2013
Interestexpense(2%x$84,022:fromschedule)........
1,680
13,320
October1,2013
1,414
13,586
December31,2013
Interestpayable..............................................
1,142
Depreciationexpense($112,0802years)...............
Accumulateddepreciation...............................
January1,2014
Interestpayable(fromadjustingentry).......................
15,000
15,000
15,000
1,142
56,040
56,040
1,142
13,858
15,000
Exercise154
Lease Amortization Schedule
Lease
Payments
1
2
3
4
5
6
7
8
15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000
120,000
Effective
Interest
2%xOutstandingBalance
.02
.02
.02
.02
.02
.02
.02
(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
(14,705)
=
=
=
=
=
=
=
Decrease
inBalance
1,942
1,680
1,414
1,142
865
582
295*
15,000
13,058
13,320
13,586
13,858
14,135
14,418
14,705
7,920
112,080
Outstanding
Balance
112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705
*adjustedforroundingofothernumbersintheschedule
January1,2013
Leasereceivable(fairvalue)..................................
Inventoryofequipment(lessorscost)...............
Cash(leasepayment)..............................................
Leasereceivable.............................................
April1,2013
Leasereceivable(difference)............................
Interestrevenue(2%x[$112,08015,000]).........
July1,2013
Leasereceivable(difference).............................
Interestrevenue(2%x$84,022:fromschedule)....
112,080
112,080
15,000
15,000
15,000
13,058
1,942
15,000
13,320
1,680
Exercise154(concluded)
October1,2013
15,000
December31,2013
Interestreceivable..............................................
1,142
January1,2014
Interestreceivable(fromadjustingentry)............
13,586
1,414
1,142
15,000
13,858
1,142
Exercise155
Requirement1
Lessors Calculation of Lease Payments

Amount to be recovered (fair value)
$112,080
__________________
Lease payments at the beginning
of each of eight quarters:
$15,000
($112,080 7.47199**)
**presentvalueofanannuitydueof$1:n=8,i=2%
Requirement2
January1,2013
Leasereceivable(fairvalue/presentvalue).............
Costofgoodssold(lessorscost)...........................
Salesrevenue(fairvalue/presentvalue).............
Inventoryofequipment(lessorscost)...............
Leasereceivable.............................................
April1,2013
Interestrevenue(2%x[$112,08015,000]).........
112,080
85,000
112,080
85,000
15,000
15,000
15,000
13,058
1,942
Exercise158
1. Calculation of the present value of lease payments
$562,907 x 5.32948
$3,000,000
Present value of an annuity due of $1: n = 6, i =5%
(rounded)
2. Liability at December 31, 2013

Initial balance, June 30, 2013...................................
June 30, 2013, reduction..........................................
Dec. 31, 2013, reduction..........................................
December 31, 2013, net liability..............................
$3,000,000
(562,907)*
(441,052)**
$1,996,041
Asset at December 31, 2013

Initial balance, June 30, 2013...................................
Accumulated depreciation at Dec. 31, 2013............
December 31, 2013............................................
$3,000,000
(500,000)**
$2,500,000
3. Expenses for year ended December 31, 2013

June 30, 2013, interest expense................................
Dec. 31, 2013, interest expense................................
Interest expense for 2013.........................................
$
0*
121,855**
$121,855
Depreciation expense for 2013.................................

Total expenses........................................................
500,000
$621,855
Calculations:
June 30, 2013*
Leased equipment (calculated in req. 1)...........................
Lease payable (calculated in req. 1)..............................
Lease payable .................................................................
Cash (lease payment)....................................................
December 31, 2013**
Interest expense (5% x [$3 million 562,907]).................
Lease payable (difference)...............................................
Cash (lease payment)....................................................
Depreciation expense ($3 million 3 years x 1/2 year)..
Accumulated depreciation..........................................
3,000,000
3,000,000
562,907
562,907
121,855
441,052
562,907
500,000
500,000

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Week7HomeworkSolutions

December 31, 2013

(b) ComputerWorld Corporation (Lessor)

December 31, 2013

Depreciation expense ($90,000 6 years) 15,000

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Present Value of Minimum Lease Payments:

Lease Amortization Schedule

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Lessors Calculation of Lease Payments

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

Present value of an annuity due of $1: n = 6, i =5%

2. Liability at December 31, 2013

Asset at December 31, 2013

3. Expenses for year ended December 31, 2013

Depreciation expense for 2013.................................

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

The McGraw-Hill Companies, Inc., 2013 Solutions Manual, Vol.1, Chapter 15

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