David Tennant Industries Inc leases TARDIS equipment from Matt Smith Equipment Corp for five years on 1/1/18 at $25,000 per year. The equipment has a five-year economic life. Lease payments are due on 12/31 of each year (not on 1/1 of each year). David Tennant Industries does not know Matt’s Smith’s implicit interest rate but their incremental borrowing rate is 5%. The lease conveys no transfer of ownership at the end of the term. There is no purchase option and no guarantee of residual value. Similar assets are depreciated on a straight-line basis.
David Tennant Industries also leases a sonic screwdriver from Song Industrial for three years starting 1/1/18. The machine has a fair value of $75,000, a 100-year economic life, and Song Industrial has other uses for it after the lease term. The lease calls for payment of $10,000 a year due on 12/31 of each year. The implicit rate is known and is 5%. The lease conveys no transfer of ownership at the end of the term. There is no purchase option and no guarantee of residual value.
Assume that David Tennant Industries treated both as operating leases with less than 12 months on the term.
Prepare a schedule of items and their values which will appear on the balance sheet as of 12/31/19
Prepare a schedule of items and their values which will appear on the income statement for the year ended 12/31/19
Prepare a schedule of items and their values which will appear on the statement of cash flows for the year ended 12/31/19 (assuming the indirect method)