Question
In: Accounting
The Harris Company is the lessee on a four-year lease with the following payments at the...
The Harris Company is the lessee on a four-year lease with the
following payments at the end of each year:
| Year 1: | $ | 12,500 |
| Year 2: | $ | 17,500 |
| Year 3: | $ | 22,500 |
| Year 4: | $ | 27,500 |
An appropriate discount rate is 7 percentage, yielding a present
value of $66,314.
a-1. If the lease is an operating lease, what will
be the initial value of the right-of-use asset?
a-2. If the lease is an operating lease, what will
be the initial value of the lease liability?
a-3. If the lease is an operating lease, what will
be the lease expense shown on the income statement at the end of
year 1?
a-4. If the lease is an operating lease, what will
be the interest expense shown on the income statement at the end of
year 1? (Leave no cells blank – be certain to enter “0”
wherever required.)
a-5. If the lease is an operating lease, what will
be the amortization expense shown on the income statement at the
end of year 1? (Leave no cells blank – be certain to enter
“0” wherever required.)
b-1. If the lease is a finance lease, what will be
the initial value of the right-of-use asset?
b-2. If the lease is a finance lease, what will be
the initial value of the lease liability?
b-3. If the lease is a finance lease, what will be
the lease expense shown on the income statement at the end of year
1? (Leave no cells blank – be certain to enter “0” wherever
required.)
b-4. If the lease is a finance lease, what will be
the interest expense shown on the income statement at the end of
year 1? (Round your answer to the nearest dollar
amount.)
b-5. If the lease is a finance lease, what will be
the amortization expense shown on the income statement at the end
of year 1? (Round your answer to the nearest dollar
amount.)
Solutions
Expert Solution
Solution:
| Sl No. | Questions | Answers | Calculations |
| a-1 | If the lease is an operating lease, the initial value of the right-of-use asset | $ 66,314 | Given |
| a-2 | If the lease is an operating lease, the initial value of the lease liability | $ 66,314 | Given |
| a-3 | If the lease is an operating lease, the lease expense shown on the income statement at the end of year 1 | $ 4,642 | $66,314 * 7/100 |
| a-4 | If the lease is an operating lease, the interest expense shown on the income statement at the end of year 1 | $ - | Under Operating Lease, interest expenses does not arises |
| a-5 | If the lease is an operating lease, the amortization expense shown on the income statement at the end of year 1 | $ - | Under Operating Lease, amortization expenses does not arises |
| b-1 | If the lease is a finance lease, the initial value of the right-of-use asset | $ 66,314 | Given |
| b-2 | If the lease is a finance lease, the initial value of the lease liability | $ 66,314 | Given |
| b-3 | If the lease is a finance lease, the lease expense shown on the income statement at the end of year 1 | $ - | Under Finance Lease, lease expenses does not arises |
| b-4 | If the lease is a finance lease, the interest expense shown on the income statement at the end of year 1 | $ 4,642 | $66,314 * 7/100 |
| b-5 | If the lease is a finance lease, the amortization expense shown on the income statement at the end of year 1 | $ 16,579 | $ 66,314 / 4 years |
Note:
1) Right to use asset and lease liability value is nothing but present value of lease payments, which is provided in the question as $ 66,314.
2) Amortization expense is lease liability divided by no.of years of lease.
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