Capital lease accounting Rogers Company signs a five-year capital lease with Pac

Question

Capital lease accounting

Rogers Company signs a five-year capital lease with Packer Company for office equipment. The annual year-end lease payment is $19,000, and the interest rate is 9%. (Table B.1, Table B.2, Table B.3, and Table B.4)

Table B.1

table B.2

table B.3

table B.4

1. Complete the below table to calculate the present value of Rogers’s five-year lease payments.

2. Prepare the journal entry to record Rogers’s capital lease at its inception.

4. Use straight-line depreciation and prepare the journal entry to depreciate the leased asset at the end of year 1. Assume zero salvage value and a five-year life for the office equipment.

Explanation / Answer

Solution 1:

Solution 2:

Solution 3:

Solution 4:

Computation of Present value of lease payment Lease payment amount Period PV Factor Present value of lease payment $19,000.00 1-5 3.8897 $73,904

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