On January 1 2015 Warr Delivery Company purchased

some equipment #6498

On January 1, 2015, Warr Delivery Company purchased some equipment for $64,768 in cash.
Warr Delivery immediately leased the equipment; Warr Delivery is the lessor. The lease contract
calls for the receipt of $14,000 payments at the end of each year for five years. The residual
value of the equipment at the end of the five-year lease term is expected to be $15,868. The
rate implicit in the lease is 9%. Except for lease-related items, there were no changes in current
operating assets or liabilities during the year; no purchases or sales of property, plant, or
equipment; and no dividends paid, stock issued, or loans obtained or repaid. The equipment
has a total useful life of eight years with no salvage value. Prepare a complete statement of
cash flows for Warr Delivery for 2015 using the indirect method of reporting operating cash flow
assuming that the lease is accounted for as(1) An operating lease (net income was $70,000),(2)
A direct financing lease (net income was $69,925),(3) A sales-type lease (net income was
$69,925; for comparability, make the unreasonable assumption that sales and cost of goods
sold are the same amount).View Solution:
On January 1 2015 Warr Delivery Company purchased some equipment

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