Question

Exercise 15-14 Lessor; operating lease; effect on financial statements [LO 15-4] At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $21,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $76,604.) 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 effect of the lease on Crescent's (lessor's) earnings for the first year? (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? (For all requirements, round your intermediate calculations to the nearest whole dollar amount.) 1 ] 2 Effect on earnings Equipment balance (net, end of year) Deferred lease revenue $ $ $ (9,820) 99,750 X 86,730 X

Answer 1

Selution Cresecent will 21000 each Yea Sieconzed ental evenve dor operatng lease agreement further charged byCresecent depreciaton to be en egutpment acqudred Anmual daprectaton Cost eipment vseu e / 80000 t3 - 13846 Etect Crescent Rental evenue - Depreciatton earntng Gn expose 21000 13846 154 2) eauipment balance (net) at the end 2018 Accumdated deprectotton Cost 18000 0 3846 1G154 Deerned Leage orevenue Rental eceived n advonce om 31 12.201 r 201 Yem 21000