Shapiro Inc was incorporated in 2010 to operate as a computer software service firm with an accounting fiscal year ending 8/31. Shapiro's primary product is a sophisticated online invenotry-control system; its customer paya fixed fee plus a usage charge for using the system.Shapiro has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of 40,000 for the 144 months of the lease term. The estimated useful life of the computer is 15 years.
Each scheduled monthly rental payment includes $3,000 for full-service maintenance on the computer to be performed by the manufacturer. All rentals are payable on the first day of the month beginning wish 8/1/11, the date the computer was installed and the lease agreement was signed. The lease is noncancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the Alpha-3 system.
This lease is to be accounted for a s a capital lease by Shapiro, and it will be depreciated by the straight-linemethod with no expected salvage value. Borrowed funds for this type of transaction would cost Shapiro 12% per yerar (1% per month). Following is a schedule of the present value of $1 for selected periods discounted at 1% per period when payments are made at the beginning of each period.
Period(months) Present value of $1 per Period Discounted at 1% per period
1 1.000
2 1.99
3 2.970
143 76.658
144 76.899
Instructions: Prpare, in general journal form, all entries Shapiro should have made in its accounting records during August 2011 relating to this lease. Give full explanations and show supporting computations for each entry. Remember, 8/31/11, is the end of Shapiro's fiscal accounting period and it will be preparing financial statements on that date. Do not prepare closing entries.