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1,388,950
Equipment 1,388,950
b Equipment 1,388,950
Cash 350,000
Equipment 1,388,950
Cash 20,000
2 Initial direct cost 100,000
PV of MLP 5,868,000
Balance 4,868,000
Atlas' entry
Cash 1,000,000
Pluto's entry
Cash 1,000,000
Cash 2,200,000
Answers:
C Atlas' entry
Rent expense 2,242,040
Cash 2,200,000
Cash 1,850,000
C Jug Inc.
Current assets
Cash 1,000,000
Cash 300,000
Error in data: Useful life of leased asset should have been 12 years, not
10 years.
If the BPO is not exercised, the lessee should record a loss equal to
the difference between the lease liability and the carrying amount of
6 A (LESSOR)
7 B
8 C
9 Acquisition cost 3,724,000
1,199,879
Lease term 4
C Interest income
10 Cost 4,565,000
D Equipment 500,000
E Cash 80,000
Equipment 420,000
F Lessee's entry
Equipment 4,565,000
Cash 50,000
depreciaton (1,626,000)
Balance 3,565,000
Assuming Assuming
sold after sold BEFORE
01-01-15 01-01-15
payment payment
Lease liability, Jan. 1, 2013 4,565,000 4,565,000
Payments:
700,000 x 4 2,800,000
296,014
Noncurrent 648,069
Note: In this problem, the annual rental was arrived at by dividing cost of machinery (ignoring the res
value) by the PV factor; since the residual value was ignored, the conclusion should therefore be that
the leased asset remains with the lessee at the end of the lease term.
13 D
esent Value
d, asset reverts to lessor
incipal Value