Question

Accounting for Leases

On July 1, 2017, Shroff Company leased a warehouse building under a 15-year lease agreement. The lease requires quarterly lease payments of $5,000. The first lease payment is due on September 30, 2017. The lease was reported as a capital lease using a 6% annual interest rate.

Required

a. Prepare a financial statement effects template to show the effects of recording the initial signing of the lase on July 1, 2017 and the necessary entries on September 30 and December 31, 2017.

Balance Sheet Transaction Cash Asset + Noncash Assets - Contra-Assets = Liabilities + Contrib. Capital + Earned Capital 7/1/17 Signed a capital lease $Answer + $Answer - $Answer = $Answer + $Answer + $Answer 9/30/17 Depreciation on leased asset Answer + Answer - Answer = Answer + Answer + Answer 9/30/17 Made quarterly lease payment Answer + Answer - Answer = Answer + Answer + Answer 12/31/17 Depreciation on leased asset Answer + Answer - Answer = Answer + Answer + Answer 12/31/17 Made quarterly lease payment Answer + Answer - Answer = Answer + Answer + Answer

Income Statement Revenue - Expenses = Net Income $Answer - $Answer = $Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer Answer - Answer = Answer

Answer 1

PV of Lease Rental

=

39.379

*

$        5,000

=

$        196,895

Period	PV Factor @1.5%
1	0.985
2	0.971
3	0.956
4	0.942
5	0.928
6	0.915
7	0.901
8	0.888
9	0.875
10	0.862
11	0.849
12	0.836
13	0.824
14	0.812
15	0.8
16	0.788
17	0.776
18	0.765
19	0.754
20	0.742
21	0.731
22	0.721
23	0.71
24	0.7
25	0.689
26	0.679
27	0.669
28	0.659
29	0.649
30	0.64
31	0.63
32	0.621
33	0.612
34	0.603
35	0.594
36	0.585
37	0.576
38	0.568
39	0.56
40	0.551
41	0.543
42	0.535
43	0.527
44	0.519
45	0.512
46	0.504
47	0.497
48	0.489
49	0.482
50	0.475
51	0.468
52	0.461
53	0.454
54	0.448
55	0.441
56	0.434
57	0.428
58	0.422
59	0.415
60	0.409

Depreciation

=

$ 196,895

/

15

=

$    13,126.33

Amortization Table
Period	Interest Expenses	Payments	Reduction in Liability	Lease Liability
0				$    196,895.00
1	$                2,953.43	$ 5,000.00	$                       2,046.58	$    194,848.43
2	$                2,922.73	$ 5,000.00	$                       2,077.27	$    192,771.15
3	$                2,891.57	$ 5,000.00	$                       2,108.43	$    190,662.72

Balancesheet												Income Statement
Transaction	Cash Asset	+	Non Cash Asset	-	Contra-Assets	=	Liabilities	+	Contributed Capital	+	Earned Capital	Revenue	-	Expenses	=	net income
7/1/17 Signed a capital lease	$                -	+	$       196,895.00	-		=	$ 196,895.00	+	$                                  -	+	$                       -	$           -	-	$                   -	=	$                   -
9/30/17 Depreciation on leased asset	$                -	+	$                         -	-	$         13,126.33	=	$                   -	+	$                                  -	+	$     (13,126.00)	$           -	-	$   13,126.00	=	$ (13,126.00)
9/30/17 Made quarterly lease payment	$ (5,000.00)	+	$                         -	-		=	$    (2,046.58)	+	$                                  -	+	$       (2,953.43)	$           -	-	$      2,953.43	=	$    (2,953.43)
12/31/17 Depreciation on leased asset	$                -	+	$                         -	-	$         13,126.33	=	0	+	$                                  -	+	$     (13,126.33)	$           -	-	$   13,126.33	=	$ (13,126.33)
12/31/17 Made quarterly lease payment	$ (5,000.00)	+	$                         -	-	$                        -	=	$      2,077.27	+	$                                  -	+	$       (2,922.73)	$           -	-	$      2,922.73	=	$    (2,922.73)

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.