Homework Answers
Solution: The useful life of the equipment is 8 years and the lease period is also 8 years. The lease period covers 100% of the useful life of the equipment. If the lease period covers atleast 75% of the useful life of an asset the lease is a capital lease. Hence the above lease is a capital lease.
Journal Entries:
| Date | Description | debit | Credit | |
| 1 | January 1,2017 | Lease Liability | $14,168 | |
| Interest Expense | $14,332 | |||
| Cash | $28,500 | |||
| 2 | December 31, 2017 | Depreciation Expense | $20,750 | |
| -Accumulated Depreciation | $20,750 |
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years.
2. The fair value of the asset at January 1, 2017, is
$84,600.
3. The asset will revert to the lessor at the end of the lease
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$84,600.
3. The asset will revert to the lessor at the end of the lease
term, at which time the asset...
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