2. LEASING Case 1 1. Finance Lease.

Because the lessee will pay the lease agreement for the Major Part of its Economic Life. 2. Present Value of the Minimum Lease Payment = 9.800 + 715 = 10.515 3. Leased equipment under finance leases 10,515 Lease Liability 10,515 4. Lease Liability 144.85 Interest Expense 105.15 Rent Expense 250 5. Depreciation Expense 186.7 Accumulated Depreciation 186.7

Case 2 1. It is a finance lease to both of them because: a. The lease term is 75% of the asset s economic life b. The present value of the minimum lease payment is more than 90% of the fair value of the asset. c. The fair value of the equipment exceeds the Ducky s cost (200,000 > 150,000) 2. Annual rental payment 3. 1 Jan 2011
 

Leased Equipment under Finance Leases Lease Liability Lease Liability Cash

190,877 190,877 41,452 41,452 31,813 31,813 17,931 17,931 200,000 144,654 194,654

12 Dec 2011

Depreciation Expense Accumulated Depreciation Interest Expense Interest Payable

4. 1 Jan 2011

Lease Receivable COGS Sales

Inventory Cash Lease Revenue 41,452

150,000

41,452

12 Dec 2011

Interest Receivable Interest Revenue

17,440 17,440

Case 3 a. Fair value of the leased asset to lessor Less: Present value of unguaranteed residual value Amount to be recovered through lease payments Six periodic lease payments 343,000.00 (34,472.75) 308,527.25

b.
GRACIA LEASING COMPANY Lease Amortization Schedule Date 1/1/2010 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015 12/31/2015 64,400 64,400 64,400 64,400 64,400 64,400 61,072 447,472 27,860 24,206 20,187 15,765 10,902 5,552 104,472 64,400 36,540 40,194 44,213 48,635 53,498 55,520 343,000 Annual Lease Payment + URV Interest 10% on Lease Receivable Recovery of Lease Receivable Lease Receivable 343,000 278,600 242,060 201,866 157,653 109,018 55,520 (0)

c. 1 Jan 2010

Lease Receivable Equipment

343,000 343,000 64,400

1 Jan 2010

Cash Lease Receivable

64,400 27,860 27,860 64,400

12 Dec 2010

Interest Receivable Interest Revenue

1 Jan 2011

Cash Lease Receivable Interest Receivable

26,540 27,860 24,206 24,206

12 Dec 2011

Interest Receivable Interest Revenue