Homework SourseFinancial Statement Impact of a Lease On January 1 2017 Musk
Financial Statement Impact of a Lease
On January 1, 2017, Muske Trucking Company leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2017. Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $112,994 and has been determined to be greater than 90% of the fair market value of the asset on January 1, 2017. Muske uses straight-line depreciation on all assets.
Required:
1. Prepare a table to show the five-year amortization of the lease obligation. Enter all amounts as positive numbers. If required, round all calculations and answers to the nearest dollar.
*Note: Due to rounding you will have to adjust the interest expense for 12/31/21 to result in a zero balance for the lease obligation.
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2. Identify and analyze the effect of the lease transaction on January 1, 2017.
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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.
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3. Identify and analyze the effect of all of the transactions on December 31, 2018 (the second year of the lease).
a. For lease payment and interest expense:
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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.
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b. For Depreciation Expense:
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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. Remember: if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. For depreciation expense: Round your answers to the nearest whole dollar.
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4. Prepare the balance sheet presentation as of December 31, 2018, for the leased asset and the lease obligation.
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| Muske Trucking Company | ||||
| Effective Interest Method of Amortization | ||||
| Date | Lease Payment | Interest Expense 8% | Reduction of Obligation | Lease Obligation |
| 1/01/17 | $ | |||
| 12/31/17 | $ | $ | $ | |
| 12/31/18 | ||||
| 12/31/19 | ||||
| 12/31/20 | ||||
| 12/31/21 |
Solution
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you. 1. Date Lease Payment Interest Expense 8% Reduction of Obligation Lease Obligation 01-01-2017 112,994 12/31/17 28,300 9,040 19,260 93,734 12/31/18 28,300 7,499 20,801 72,932 12/31/19 28,300 5,835 22,465 50,467 12/31/20 28,300 4,037 24,263 26,204 12/31/21 28,300 2,096 26,204 0 2. Balance Sheet Income Statement Stockholders\' Net Assets = Liabilities + Equity Revenues – Expenses = Income 112994 112994 Leased Asset Debit Lease obligation credit 3. a Balance Sheet Income Statement Stockholders\' Net Assets = Liabilities + Equity Revenues – Expenses = Income -9040 9060 -9060 cash credit interest exp debit b Balance Sheet Income Statement Stockholders\' Net Assets = Liabilities + Equity Revenues – Expenses = Income 22599 22599 -22599 112994/5 Dep exp debit Accumulated Dep credit 4. Muske Trucking Company Balance Sheet (Partial) December 31, 2018 Long-term assets: Leased truck 112994 Accumulated depreciation -45198 22599*2 67796 Current liabilities: Lease Obligation 22465 From Amortization Schedule Long-term liabilities: Lease Obligation 50466 From Amortization Schedule
