Question

In: Accounting

The Balance Sheet of the Illini as of 12/31/20X0: Assets Current Assets: Cash 1,500,000 Accounts receivable,...

The Balance Sheet of the Illini as of 12/31/20X0:

Assets

Current Assets:

Cash 1,500,000

Accounts receivable, net 18,000

Inventory 50,000

Total current assets 1,568,000

Equipment 90,000

Goodwill 20,000

Total assets $1,678,000

Liabilities and shareholders' equity

Shareholders' equity:

Common stock, 20,000 shares outstanding, $1 par 20,000

Additional paid-in capital 280,000

Retained earnings 1,378,000

Total shareholders' equity 1,678,000

Total liabilities and shareholders' equity 1,678,000

Note that all additional paid-in capital (APIC) sub accounts (e.g., APIC-options and APIC-treasury stock), if any, are tracked in the “Additional paid-in capital” account on the Balance Sheet.

2.2 Part 2

Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%.

Date

Account Name

Debit

Credit

1/1/20x1

ROU assets

[A]

Lease obligation

[B]

1/1/20x1

Lease obligation

[C]

Cash

[D]

12/31/20x1

Rental expense

[E]

Accrued interest

[F]

ROU assets

[G]

1/1/20x2

Lease obligation

[H]

Accrued interest

[I]

Cash

[J]

12/31/20x2

Rental expense

[K]

Accrued interest

[L]

ROU assets

[M]

2.2 Part 3

Illini leases equipment to Cardinal Corporation under a four-year lease agreement on 1/1/20x1. The equipment has a net carrying value of $90,000 on Illini’s book on 1/1/20x1. The fair value of the equipment is $132,357. Illini’s initial costs incurred for the lease arrangement is $10,000. The lease specifies annual payments of $36,000 on each 1/1 and beginning 1/1/20x1. The expected useful life of the equipment is five years. The expected residual value of the equipment is $10,000, which is guaranteed by Cardinal. The implicit rate is 10%.

Date

Account Name

Debit

Credit

1/1/20x1

Investment in lease

[A]

COGS

[B]

Selling expense-Initial issuance cost

[C]

Equipment

[D]

Cash

[E]

Sales revenue

[F]

1/1/20x1

Cash

[G]

Investment in lease

[H]

12/31/20x1

Interest receivable

[I]

Interest revenue

[J]

1/1/20x2

Cash

[K]

Interest receivable

[L]

Investment in lease

[M]

12/31/20x2

Interest receivable

[N]

Interest revenue

[O]

Solutions

Expert Solution

2.2 Part 2
Date Account Name Debit Credit
1/1/20x1 ROU assets 100000
Lease obligation 100000
1/1/20x1 Lease obligation 10000
Cash 10000
12/31/20x1 Rental expense 25000
Accrued interest 10000
ROU assets 35000
1/1/20x2 Lease obligation 10300
Accrued interest 10000
Cash 20300
12/31/20x2 Rental expense 25000
Accrued interest 10000
ROU assets 35000
2.2 Part 3
Date Account Name Debit Credit
1/1/20x1 Investment in lease 90000
COGS 132357
Selling expense-Initial issuance cost 10000
Equipment 90000
Cash 10000
Sales revenue 132357
1/1/20x1 Cash 36000
Investment in lease 36000
12/31/20x1 Interest receivable 9000
Interest revenue 9000
1/1/20x2 Cash 36000
Interest receivable 9000
Investment in lease 45000
12/31/20x2 Interest receivable 9000
Interest revenue 9000

ekkarill92 answered 2 years ago
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