Question

Chapter 15 Homework i Saved Help Save & Exit Submit Exercise 15-14 (Algo) Lessor; operating lease; effect on financial statements [LO 15-4) 6 1.5 points At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $30,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 thereafter through 2028. The equipment was acquired recently by Crescent at a cost of $225,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. Crescent records depreciation using the straight- line method. Crescent seeks a 12% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) eBook Reference Required: 1. What will be the effects of the lease on Crescent's earnings for the first year (ignore taxes)? (Enter decreases with negative numbers.) 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent (ignore taxes)? (For all requirements, round your intermediate calculations to the nearest whole dollar amount.) 1 Effect on earnings 2 Equipment balance (net, end of year) Deferred lease revenue

Answer 1

Solution 1:
Rental revenue	30000
Less: Depreciation expense (225000/13)	17308
Effect On earnings	12692
Solution 2:
Cost of Equipment	225000
Less: depreciation	17308
Equipment balance (net, at the end)	207692
Deferred lease revenue	30000
(Rental received in advance on 31.12.2021 for 2022 year)