devry acct305 homework7

Week Seven - Homework Exercises E15-1, E15-3, E15-4, E15-5, E15-8

E15-1 On January 1, 2013, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers from ComputerWorld Corporation under a two-year operating lease agreement. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of six years with no residual value.

Reguired: Prepare the appropriate entries for both (a) the lessee and (b) the lessor from the inception of the lease through the end of 2013. (Use straight-line depreciation.)

E15-3 "(Note: Exercises 15–3, 15–4, and 15–5 are three variations of the same basic situation.)

Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2013. Edison purchased the equipment from International Machines at a cost of $112,080."

Related Information:

Lease term 2 years (8 quarterly periods)

Quarterly rental payments $15,000 at the beginning of each period

Economic life of asset 2 years

Fair value of asset $112,080

Implicit interest rate 8%

(Also lessee's incremental borrowing rate)

Required: Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the inception of the lease through January 1, 2014. Depreciation is recorded at the end of each fiscal year (December 31) on a straight-line basis.

E15-4 Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2013. Edison purchased the equipment from International Machines at a cost of $112,080.

Related Information:

Lease term 2 years (8 quarterly periods)

Quarterly rental payments $15,000 at the beginning of each period

Economic life of asset 2 years

Fair value of asset $112,080

Implicit interest rate 8%

(Also lessee's incremental borrowing rate)

Required: Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the inception of the lease through January 1, 2014. Edison’s fiscal year ends December 31.

E15-5 Manufacturers Southern leased high-tech electronic equipment from International Machines on January 1, 2013. International Machines manufactured the equipment at a cost of $85,000.

Related Information:

Lease term 2 years (8 quarterly periods)

Quarterly rental payments $15,000 at the beginning of each period

Economic life of asset 2 years

Fair value of asset $112,080

Implicit interest rate 8%

(Also lessee's incremental borrowing rate)

Required: 1. Show how International Machines determined the $15,000 quarterly rental payments.

2. Prepare appropriate entries for International Machines to record the lease at its inception, January 1, 2013, and the second rental payment on April 1, 2013.

E15-8 "(Note: Exercises 15–8, 15–9, and 15–10 are three variations of the same situation.)

On June 30, 2013, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2013. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3 million."

Required: 1. Determine the present value of the lease payments at June 30, 2013 (to the nearest $000) that Georgia-Atlantic uses to record the leased asset and lease liability.

2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2013?

3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2013?