1. On January 2, 2012, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2014assuming this is a direct-financing lease?
|
|
PV Annuity Due
|
PV Ordinary Annuity
|
PV Single Sum
|
|
8%, 5 periods
|
4.31213
|
3.99271
|
.68508
|
|
10%, 5 periods
|
4.16986
|
3.79079
|
.62092
|
a)
|
Cash
|
80000
|
|
|
Lease Receivable
|
370000
|
|
|
Equipment
|
|
450000
|
b)
|
Cash
|
80000
|
|
|
Lease Receivable
|
264970
|
|
|
Loss
|
105030
|
|
|
Equipment
|
|
450000
|
c)
|
Cash
|
80000
|
|
|
Lease Receivable
|
284635
|
|
|
Equipment
|
|
364635
|
d)
|
Cash
|
80000
|
|
|
Lease Receivable
|
299224
|
|
|
Equipment
|
|
379224
|
2. On January 2, 2012, Gold Star Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick's incremental borrowing rate is 10%, however it knows that Gold Star's implicit interest rate is 8%. What journal entry would Brick Co. make at January 2, 2014to record the lease?
|
|
PV Annuity Due
|
PV Ordinary Annuity
|
PV Single Sum
|
|
8%, 5 periods
|
4.31213
|
3.99271
|
.68508
|
|
10%, 5 periods
|
4.16986
|
3.79079
|
.62092
|
a)
|
Cash
|
80000
|
|
|
Lease Receivable
|
370000
|
|
|
Equipment
|
|
450000
|
b)
|
Cash
|
80000
|
|
|
Lease Receivable
|
264970
|
|
|
Loss
|
105030
|
|
|
Equipment
|
|
450000
|
c)
|
Cash
|
80000
|
|
|
Lease Receivable
|
284635
|
|
|
Equipment
|
|
364635
|
d)
|
Cash
|
80000
|
|
|
Lease Receivable
|
299224
|
|
|
Equipment
|
|
379224
|
3. ON Jan 2, 2015, Hernandez, Inc. signed a 10-year noncancelable lease for a heavy duty drill press. The lease stipulated annual payments of $200,000 starting at the beginning of the first year, with title passing to Hernandez at the expiration of the lease. Hernandez treated this transaction as a capital lease. The drill press has an estimated useful life of 15 years, with no salvage value. Hernandez uses straight-line depreciaition for all of its plant assets. Aggregate lease payments were determined to have a present value of $1,200,000, based on implicit interest of 10%.
3-1.In its 2015 income statement, what amount of interest expense should Hernandez report from this lease transaction?
a. 0
b. 81000
c. 108000
d. 120000
3-2. In its 2015 income statement, what amount of depreciation expense should Hernandez report from this lease transaction?