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Financial Accounting
of the MLP.
Cash 35,923
• 100,000 * 12% = 12,000
4. Payment on 12/31/2016:
Interest Expense 9,489.191
Lease Liability 23,434.262
Property Tax Expense 3,000
Cash 35,923.45
Cash 35,923.45
Lease Receivable 20,923.45**
Interest Revenue 12,000*
Property Tax Payable 3,000
*100,000 (lease receivable) x 12% = 12,000
•
** 35,923.45-12,000
2016:
Cash 35,923.45
Lease Receivable 23,434.26
Interest Revenue 9,489.19*
Property Tax Payable 3,000
2018:
Cash 35,923.45*
Lease Receivable 29,395.91
Interest Revenue 3,527.54
Property Tax Payable 3,000
P.V. of the MLP for both the lessee and lessor =>
$32,923.42 x 3.401831 + $0c = $112,000.
The lease is a capital lease for the lessee
and a direct financing lease for the lessor.
Accounting for Leases 83
Journal Entries for Example A2-
Lessee
Initial Recording
Leased Equip.* 112,000
Lease Liability 112,000
*PV of lessee’s MLP = $32,923.45 * 3.40183 = 112,000)
Payment on 1-1-2015 (the inception of the lease)
Lease Liability 32,923.45
Property Tax Expense 3,000
Cash 35,923.45
Recording of Depreciation on 12/31/2015 (also on
12/31/2016, 12/31,2017, and 12/31/2018)
Depreciation Expense-Leased Equipment 28,000
Acc. Depreciation-Leased Equipment 28,000
Accounting for Leases 84
Example A2 –Lessee (Cont.)
Recording accrued Interest Expense:
12/31/2015 Interest Expense 9,489.19a
Interest Payable 9,489.19
12/31/2015 $9,489.19
1/1/2016 $32,923.45 $23,434,26 $55,642.29
12/31/2016 $6,677.07
1/1/2017 $32,923.45 $26,246.38 $29,395.91
12/31/2017 $3,527.54
1/1/2018 $32,923.45 $29,395.91 $0
Total $131,693.80 $19,693.80 $112,000
Accounting for Leases 89
Journal Entries for Example A2 -Payments in
Advance with zero RV- Lessor
Initial Recording on 1/1/2015
Lease Receivable* 112,000
Equipment 112,000
*Lease Receivable = annual Lease Payment (excluding executory costs) x PV
factor of an annuity due at 12%+ the PV of the residual value (guaranteed or
not) or BPO if any. Lease Receivable= $32,923.42 x 3.401831+ $0c = 112,000.
a. (112,635.5-32,923.45) x 12%
Capital Leases:
Lessee: reports cash flows for payments
toward interest exp. as cash flows from
operating activities and reports the payments
toward the principal (i.e., Lease Liability) as
cash flows from financing activities.
Accounting for Leases 151
Reporting on Statement of Cash Flows
(contd.)
Capital Leases (contd.):
Lessor: reports cash flows of the interest
portion as cash flows from operating
activities and the cash receipts toward the
principal portion as cash flows from
investing activities.
Lessee
Finance
Risks and
rewards of
Right-of-use asset xxx
lease liability xxx
1. Int. expense on liability
tests on P171.
2. No dealer or manufacturer’s profit.