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Supplement Exercises: Exercise 15-33

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59 views

Supplement Exercises: Exercise 15-33

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Uploaded by

rudy
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© © All Rights Reserved
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SUPPLEMENT EXERCISES
Exercise 1533
Present Value of Lease Payments:
($15,000 x 7.47199*) = $112,080
lease
present
payments
value
* Present value of an annuity due of $1: n = 8, i = 2%
[i = 2% (8% 4) because the lease
calls for quarterly payments]

Lease Amortization Schedule


Lease
Payments

1
2
3
4
5
6
7
8

15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000

Effective
Interest
2% x Outstanding Balance

.02
.02
.02
.02
.02
.02
.02

(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
(14,705)

120,000

=
=
=
=
=
=
=

Decrease
in Balance

Outstanding
Balance

1,942
1,680
1,414
1,142
865
582
295*

15,000
13,058
13,320
13,586
13,858
14,135
14,418
14,705

112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705
0

7,920

112,080

* Adjusted for rounding of other numbers in the schedule.

The McGraw-Hill Companies, Inc., 2013


1580

Intermediate Accounting, 7e

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Exercise 1533 (continued)


January 1, 2013
Right-of-use equipment (present value calculated above)
Lease liability (present value calculated above) ....
Lease liability .....................................................
Cash (lease payment) .........................................
March 31, 2013
Interest expense (2% x [$112,080 15,000]) .............
Lease liability (difference) ....................................
Cash (lease payment) .........................................
Amortization expense ($112,080 8 quarters) .........
Right-of-use equipment ..................................
June 30, 2013
Interest expense (2% x $84,022: from schedule) ........
Lease liability (difference) ....................................
Cash (lease payment) .........................................
Amortization expense ($112,080 8 quarters) .........
Right-of-use equipment ..................................
September 30, 2013
Interest expense (2% x $70,702: from schedule) ........
Lease liability (difference) ....................................
Cash (lease payment) .........................................
Amortization expense ($112,080 8 quarters) .........
Right-of-use equipment ..................................
December 31, 2013
Interest expense (2% x $57,116: from schedule) ........
Lease liability (difference) ....................................
Cash (lease payment) .........................................
Amortization expense ($112,080 8 quarters) .........
Right-of-use equipment ..................................

Solutions Manual, Vol.2, Chapter 15

112,080
112,080
15,000
15,000
1,942
13,058
15,000
14,010
14,010
1,680
13,320
15,000
14,010
14,010
1,414
13,586
15,000
14,010
14,010
1,142
13,858
15,000
14,010
14,010
The McGraw-Hill Companies, Inc., 2013
1581

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Exercise 1534

Lease Amortization Schedule


Lease
Payments

1
2
3
4
5
6
7
8

15,000
15,000
15,000
15,000
15,000
15,000
15,000
15,000

Effective
Interest
2% x Outstanding Balance

.02
.02
.02
.02
.02
.02
.02

(97,080)
(84,022)
(70,702)
(57,116)
(43,258)
(29,123)
(14,705)

120,000

=
=
=
=
=
=
=

Decrease
in Balance

Outstanding
Balance

1,942
1,680
1,414
1,142
865
582
295*

15,000
13,058
13,320
13,586
13,858
14,135
14,418
14,705

112,080
97,080
84,022
70,702
57,116
43,258
29,123
14,705
0

7,920

112,080

* Adjusted for rounding of other numbers in the schedule.

January 1, 2013
Lease receivable (present value of lease payments*) .
Asset for lease (carrying amount) .....................
Cash (lease payment) ..............................................
Lease receivable .............................................
March 31, 2013
Cash (lease payment) ..............................................
Lease receivable (difference) ............................
Interest revenue (2% x [$112,080 15,000]) .........

The McGraw-Hill Companies, Inc., 2013


1582

112,080
112,080
15,000
15,000
15,000
13,058
1,942

Intermediate Accounting, 7e

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Exercise 1534 (concluded)


June 30, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x $84,022: from schedule) ....
September 30, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x $70,702: from schedule) ....
December 31, 2013
Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x $57,116: from schedule) ..

Solutions Manual, Vol.2, Chapter 15

15,000
13,320
1,680
15,000
13,586
1,414
15,000
13,858
1,142

The McGraw-Hill Companies, Inc., 2013


1583

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Exercise 1535
Requirement 1
Amount to be recovered (fair value)
Less: Present value of the residual value ($161,803 x .85349*)
To be recovered through periodic lease payments (present value)

$250,177
(138,097)
$112,080
7.47199**
$ 15,000

Lease payments at the beginning of each of the next 4 years


* Present value of $1: n = 8, i = 2%
** Present value of an annuity due of $1: n = 8, i = 2%

So, Edison expects to recover its $250,177 investment as follows:


Present value of periodic lease payments ($15,000 7.47119**)
Plus: Present value of the residual value ($161,803 x .85349*)
Amount to be recovered (fair value)

$112,080
138,097
$250,177

* Present value of $1: n = 8, i = 2%


** Present value of an annuity due of $1: n = 8, i = 2%

Requirement 2
Only a portion of the right to use the asset is being transferred. Accordingly, a portion is
being retained. The portion transferred is:
$112,080

/ $250,177 x $250,177, or $112,080

So, the portion retained (residual asset) is the remainder:


$250,177 112,080, or $138,097

January 1, 2013
Lease receivable (present value) ............................
Residual asset (carrying amount of portion retained) .
Asset for lease (carrying amount) .....................

112,080
138,097
250,177

Note: When the carrying amount of the asset is equal to its fair value, the residual
asset is simply the difference between the carrying amount (fair value) and
the lease receivable.

Cash (lease payment) ..............................................


Lease receivable .............................................
The McGraw-Hill Companies, Inc., 2013
1584

15,000
15,000

Intermediate Accounting, 7e

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Exercise 1535 (concluded)

March 31, 2013


Cash (lease payment) .............................................
Lease receivable (difference) ............................
Interest revenue (2% x [$112,080 15,000]) .........
Residual asset...............................................................
Accretion revenue ($138,097 x 2%) ..................

15,000
13,058
1,942
2,762
2,762

Accretion Schedule (not required)


Accretio
n
Revenue

1
2
3
4
5
6
7
8

###
###
###
###
###
###
###
###

2,762
2,817
2,874
2,931
2,990
3,049
3,110
3,173

Solutions Manual, Vol.2, Chapter 15

Increase
in Balance

Balance

2,762
2,817
2,874
2,931
2,990
3,049
3,110
3,173

138,097
140,859
143,676
146,550
149,481
152,470
155,520
158,630
161,803

PV at commencement of lease

Estimated value at end of lease

The McGraw-Hill Companies, Inc., 2013


1585

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Exercise 1536
Requirement 1
Amount to be recovered (fair value)
Lease payments at the beginning of each of the next eight quarters

$112,080
7.47199**
$ 15,000

* Present value of $1: n = 8, i = 2%


** Present value of an annuity due of $1: n = 8, i = 2%

Requirement 2
January 1, 2013
Lease receivable (present value of lease payments) ...
Asset for lease (carrying amount) .......................
Profit (difference)*** .......................................
Cash (lease payment) ..............................................
Lease receivable .............................................
March 31, 2013
Cash (lease payment) ..............................................
Lease receivable (difference) .............................
Interest revenue (2% x [$112,080 15,000]) .........
***

112,080
80,000
32,080
15,000
15,000
15,000
13,058
1,942

A company might choose to separate this profit into its two components: Sales revenue ($112,080) and cost
of goods sold ($80,000), which is the gross method demonstrated for sales-type leases in the main chapter.

The McGraw-Hill Companies, Inc., 2013


1586

Intermediate Accounting, 7e

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