Leased Assets
Koffman and Sons signed a four-year lease for a forklift on January 1, 2014. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2014.
Required
1. Assume that the lease is treated as an operating lease.
a. Will the value of the forklift appear on Koffman's balance sheet?
b. What account will indicate that lease payments have been made?
2. Assume that the lease is treated as a capital lease.
a. Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 ($1,510 x 4).
b. Prepare the journal entry to record the first lease payment on December 31, 2014.
c. Calculate the amount of depreciation expense for the year 2014.
d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2014?