Shapiro Inc was incorporated in 2010 to operate as a

Shapiro Inc. was incorporated in 2010 to operate as a computer software service firm with an
accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online
inventory-control system; its customers pay a 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 (12 years) 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 with August 1,
2011, the date the computer was installed and the lease agreement was signed. The lease is
non-cancelable 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 as a capital lease by Shapiro, and it will
be depreciated by the straight line method with no expected salvage value. Borrowed funds for
this type of transaction would cost Shapiro 12% per year (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. Prepare, 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, August 31,
2011, is the end of Shapiro’s fiscal accounting period and it will be preparing financial
statements on that date. Do not prepare closing entries.(AICPAadapted)View Solution:
Shapiro Inc was incorporated in 2010 to operate as a
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