Question

Question in accounting, I appreciate the help!

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 $25,000 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 $171,000 (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 8% 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.) 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

This is the question I am seeking to have answered. It is asking for the effect on earnings, equiptment balance (net,end of year), and deferred lease revenue. Thank you so much for the help!

Answer 1

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Answer 1 Lease Revenue Less: Depreciation Effect on Earnings 25,000 13,154 11,846 Answer 2 Cost of Equipment Less: Depreciation on Equipment Equipment balance (net, end of year) 171,000 13,154 157,846 25,000 Deferred lease revenue (Annual payment of lease) Calculation of Depreciation (SLM Method) Cost of Equipment/ Number of Years (useful life) 171,000 / 13 13,154