5) The Sleasey Corp. (Year end 12/31) has offered to lease you (Accounting Corp.

Question

5) The Sleasey Corp. (Year end 12/31) has offered to lease you (Accounting Corp. (Year end 12/31) their Basic Advanced Intermediate Accounting Calculator (guaranteed to solve all deferred tax, lease, & bond problems, with 2,786 page user manual) under the following Inception Date of Lease: 01/01/2017 12/31/2020 Lease Expires: Economic Life of Asset Lease payment 5 years ? per year Implicit Rate: 10% Cost of Asset: Selling Price (Fair value) of Asset $ 20,000 $25,000 The payments are due at the end of each year. REQUIRED 1. What type of lease is this to the lessee? 2. What type of lease is this to the lessor? 3. Compute the lease payment 4. Create an amortization table for this lease. 5. What would the payment be if the payments were due at the beginning of each year instead of at the end?

Explanation / Answer

Part 1

Operarting Lease because after the lease period expires, asset is not transferred to the leasse.

Part 2

Direct Financing Lease because:

Part 3

Lease payment would be yearly payment of $ 3313

Part 4

Period Payment Principal Part Interest Part Balance 1 $3,313.78 $3,147.11 $166.67 $16,852.89 2 $3,313.78 $3,173.34 $140.44 $13,679.56 3 $3,313.78 $3,199.78 $114.00 $10,479.78 4 $3,313.78 $3,226.44 $87.33 $7,253.33 5 $3,313.78 $3,253.33 $60.44 $4,000.00

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