Asked by flora Verdura on Jun 04, 2024
Verified
Refer to Exhibit 21-2.What would be the debit to Leased Equipment under Capital Leases on January 1, 2010? (Round amounts to the nearest dollar.)
A) $ 72, 096
B) $ 77, 770
C) $100, 000
D) $110, 000
Implicit Interest Rate
The interest rate that equates the present value of lease payments to the fair value of the leased asset, often used in lease agreements.
Capital Lease
A lease agreement that is considered a purchase by the lessee because of its terms, such as a bargain purchase option, which allow for the transfer of ownership over the asset's life.
Residual Value
The estimated value of an asset at the end of its useful life.
- Determine the present worth of lease payments and recognize its effect on the classification and accounting treatment of leases.
- Recognize and categorize various lease agreements based on accounting norms.
Verified Answer
CG
Camila Gonçalves
Jun 06, 2024
Final Answer :
B
Explanation :
The debit to Leased Equipment under Capital Leases on January 1, 2010, is calculated by adding the present value of the lease payments and the present value of the guaranteed residual value. The present value of the lease payments is $20,000 * 3.604776 = $72,096 (rounded to the nearest dollar). The present value of the guaranteed residual value is $10,000 * 0.567427 = $5,674 (rounded to the nearest dollar). Adding these two amounts gives $72,096 + $5,674 = $77,770.
Learning Objectives
- Determine the present worth of lease payments and recognize its effect on the classification and accounting treatment of leases.
- Recognize and categorize various lease agreements based on accounting norms.