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Posted by: Homeworkhelp
Price Quoted by Student: $5
Posted On: 2011-03-11 01:01:14
 
Question

Problem 14-10AC Montana Company signs a five-year capital lease with Elway Company for office

 

Problem 14-10AC Capital lease accounting

 

ANSWER KEY Problem 14-10AC Montana Company signs a five-year capital lease with Elway Company for office

 

Fundamental Accounting Principles, 17th Edition Larson Wild Chiappetta:

 

Problem 14-10AC Montana Company signs a five-year capital lease with Elway Company for office equipment. The annual lease payment is $20,000, and the interest rate is 8%.

 

Required

1. Compute the present value of Montana’s five-year lease payments.

2. Prepare the journal entry to record Montana’s capital lease at its inception.

3. Complete a lease payment schedule for the five years of the lease with the following headings. Assume that the beginning balance of the lease liability (present value of lease payments) is $79,854. (Hint: To find the amount allocated to interest in year 1, multiply the interest rate by the beginning-of-year lease liability. The amount of the annual lease payment not allocated to interest is allocated to principal. Reduce the lease liability by the amount allocated to principal to update the lease liability at each year-end.)

 

Period Balance of period ending date

 

Beginning balance of lease liability

Interest on lease liability

Reduction of lease liabilities

Cash lease payment

Ending balance of lease liability

 

 

 

 

 

 

 

4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.


Solutions
ANSWER KEY Problem 14-10AC Montana Company signs a
Price $5
Attachment 1: P14-10AC Montana Company.doc
Solution Posted By: Homeworkhelp    Posted on: 11-03-2011