Question

please let me know how they got solution for these three

73. Acompany became a lessee by leasing equipment on January 1, 2011 from a lesser. The lease has the following characteristics 14 years $200 000 Original usul life of asset Both lesor and we wse 10 for a capitallation Market value of equipment at lease inception Book value of equipment at lease inception Remaining useful life of equipment inception A third party guarantees the entire residual value of Six end-of-year lease payments are due beginning December 31, 2011 in the amount of 10 years 5387 541,75 The lease term ands December 31, 2016 Assume this is a finance lease for the parties. Over what number of years will the lesse amortize the leased asset? Difficulty: Medium Level of Learning: Applicatie Topic: LOZ 74. On January 1, 2011, MU Corporation leased under an operating lease, tochtain the se of a special machine for three years. The case payments were $9.000 per year payable at cach year-end the lessee must pay all perting expenses. At the inception de MU Corporation should A) record the asset at $27.000 B) record the expense of $27.000 C) record the asset it for market value D) record the asset at the present value of the annualcase payments E) maken entry Difficulty: Medium Level of Learning: Applicatie Trác L01 Becky, Card Aurrell w i Copyright © 2011 McGraw-Hill Ryon Limited th it . Vol. 2 Chapter 17 - L es 75. AS-year lease contractis ed 1/xl calling for $4,000 to be paid by the lessee on 12/31/2, and 56,000 on 12/31/2, 3, and 4 Total lase payments over the lease are therefore $92000. The lewe expects to use the leased aut evenly throughout the lease term, which end 12/31/25 No payment is due in 2015. The entry feeded by the less for this operating lease on 12/31xl includes which of the following A) Trent payable 800 B) dr rent expense $4.400 C) dr prepaid $400 el expense 4.000 Difficulty: Medium Level of Learning: Application T ác 0). 76. Les ABC leased from Lessor ORS a maching that cost $35.000, which was properly classified as a finance lease by both parties. Assume the lessor used a 12 percent implicit interest and that the lessee was informed of that we the lease did not include a purchase tice and the estimated residual value al termination of the lease was zero. Equal semi l las payments are to be made at the start of cach such period, including one on the date the lease was signed. The amount of each semi-annual payment, assuming a five-year case tem would be

Answer 1

73. D. 6

Explanation: In case of a financial lease, the asset is recognized in the books of the lessee and amortized over the period of lease. In the above mentioned scenario, the tenure of lease is from January 1, 2011 to December 31, 2016 i.e. 6 years. hence, lessee will amortize the leased asset over a period of 6 years.

74. E. make no entry

Explanation: In case of operating lease, the asset is not recognized in the books of the lessee and only payment of lease rentals is recorded in the books of accounts. In the present case, no entry will be made at the inception of lease and only payment of lease rentals at the end of the year will be recorded in the books.

75. B. dr. rent expense $4,400

Explanation: In case of operating lease, the lease rentals are recorded depending upon the use of the leased asset over the life of the lease term. In the present case, the asset is used evenly throughout the lease term of 5 years at an aggregate lease rentals of $22,000. Hence, the expense to be recorded in the books is $4,400 (i.e. $22,000 / 5 years).