Question

In: Accounting

New lease standards become effective January 1, 2019. These standards affect the accounting for operating leases....

New lease standards become effective January 1, 2019. These standards affect the accounting for operating leases. Assume Swift Company acquires a machine with a fair value of $100,000 on January 1 of Year 1 by signing a five-year lease. Swift must make payments of $16,275 each December 31. The appropriate interest rate on the lease is 10%. Assume that this lease meets the criteria for an operating lease. Compute the following amounts under BOTH:

(a) the lease standards in effect before January 1, 2019,

(b) the new lease standards (an amortization table will be useful in solving this problem)

For the following:

  • The leased asset at December 31 of each of the first three years.

  • The lease liability at December 31 of each of the first three years.

  • Rent expense for each of the first three years.

  • Interest expense for each of the first three years.

  • Depreciation expense for each of the first three years.

Solutions

Expert Solution

The amortization table :

*Present value of an annuity of five payments of $16,275, discounted at 10%.
** Difference due to rounding. It should be $0 liability at the end of the lease.


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