9-76 Capital Leases The Home Depot is the leading retailer in the home improveme
ID: 2484657 • Letter: 9
Question
9-76 Capital Leases
The Home Depot is the leading retailer in the home improvement industry and one of the 10 largest retailers in the United States. The company included the following on its January 29, 2012, balance sheet and footnotes ($ in millions):
Total capital lease payments, scheduled for the fiscal year ending in 2013, are $106,000,000.
1. Prepare the journal entry for the $106,000,000 lease payments. Remember that the lease payments will include the principal payments due for the year plus interest expense accrued for the year.
2. Suppose that the capital lease assets have an average remaining life of 20 years and that no new leases are signed in the fiscal year ending in 2013. Compute the balance in the capital lease asset account and the total in the capital lease obligations account (long-term and current combined) as of the year ending in 2013.
3. Explain why the amount in the capital lease assets account is not equal to the amount in the lease obligations accounts.
Capital lease assets $ 588 Capital lease obligations (long term) $ 420 Capital lease obligations (current) $ 29 Total capital lease obligations $ 449Explanation / Answer
Current obligation 29 Accrued Interest 77 Cash 106 (Annual payment with Interest) Assets Value 588 Life 20 Years Depreciation per year 29.4 Book Value at 2013 558.6 Capital Lease Obligation(Long Term) 420 Transfer to Current Obligation 29 Balance in long term 391 Balance in Current 29 Total Obligation 420 The difference is due to difference in depreciation per year and current obligation
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