Question

Leased Assets

Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,468, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017.

PV of Annuity of $1

Required:

Refer to the table above for present value factors.

1. Assume that the lease is treated as an operating lease.

a. Will the value of the forklift appear on Koffman's balance sheet?
_________________

b. What account will indicate that lease payments have been made?
_________________

2. Assume that the lease is treated as a capital lease or finance lease.

a.  Identify and analyze the effect when the lease is signed.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

Explain why the value of the leased asset is not recorded at $5,872 ($1,468 x 4). The leased asset should be reported at the   of the payments which is $ not at $

b.  Identify and analyze the effect of the first lease payment on December 31, 2017.

Activity
Accounts
Statement(s)

How does this entry affect the accounting equation?
If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Round answers to the nearest whole dollar.

Balance Sheet

Income Statement

Stockholders'

Net

Assets

=

Liabilities

+

Equity

Revenues

–

Expenses

=

Income

c. Calculate the amount of depreciation expense for the year 2017. Round answer to the nearest whole dollar.
$__________________

d. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2017? Round answers to the nearest whole dollar.

Current liability portion	$
Long-term liability portion	$

Answer 1

Answer:

Answering question first as per Chegg's guidelines

1a)In case of operating lease,ownership of asset is not transferred to lessee(user of asset),hence ownership of asset leased is retain with the lessor.

In the given case lease is treated as operating lease,hence value of the forklift will not appear on Koffman's balance sheet.

b)Payment against operating lease is treated rent for the asset,accordingly such payment is debited to Profit and Loss Account and credited to bank/cash account.

Thus,Cash/bank account will indicate that lease payments have been made.