Leasing Question Essay

Submitted By Jingjie-Huang

Words: 293

Pages: 2

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(a)
1. Transfer ownership 2. Bargain purchase option 3. Major part of the economic life>= 75% 4. Specialized nature 5. At least 90% fair value 6. Non-cancellable
(b) PV annual = payment – executive cost = 24000-2000 = 22000
MLPs = PV of annual payment + PV of Bargain + PV of GRV
= 22000*(1+1/1.1+1/1.1^2+1/1.1^3+1/1.1^4) + 2000*(1/1.1^5)
=92978.9 = 92979 = 92980
Lease term is for the major part of the economic life: 5/6 greater than 75%
MPLs/ Fair value of the leased assets = 92980/92980 =100%

Lease payment schedule
Date
MLPs
INT EXP
Reduction in liability
Balance of liability
1/7/2012

92980
1/7/2012
22000

22000
70980
1/7/2013
22000
7098
14902
56078
1/7/2014
22000
5608
16392
39686
1/7/2015
22000
3969
18031
21655
1/7/2016
22000
2166
19834
1820
1/7/2017
2000
180
1820
0

(c) lessee
1/7/2012 Dr leased Asset 92980 Cr leased liability 92980 ( to record lease & liability)

1/7/2012 Dr leased liability 22000 Dr Executive cost 2000 Cr Cash 24000
(to record first lease payment)
30/6/2013 Dr Depreciation Expense 18196 Cr Accumulated Depreciation 18196
(to record dep of the lease asset)
1/7/2013 Dr Lease Liability 14902 Dr Executive cost 2000 Dr Interest Expense 7098 Cr Cash 24000
30/6/2014 Dr Depreciation Expense 18196 Cr Accumulated Depreciation 18196
.
.
.
1/7/2017 Dr Interest Expense 180 Dr Liability 1820 Cr Cash 2000

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