on 12/31/2017, Nunavut Counts leased equipment from Aba Equipment Rental and pro

Question

on 12/31/2017, Nunavut Counts leased equipment from Aba Equipment Rental and properly recorded the transaction as a capital lease. Pertinent lease transaction data are as follows The lease is non-cancelable The estimated seven-year useful equipment life coincides with the lease ter Aba's implicit interest rate of 12% is known to Nunavut Courts Nunavut's incremental borrowing rate is 14% Present values of an annuity due of $1 in advance for seven periods are 5.11 at 12% and 4 89 . The first of the seven equal annual $200,000 lease payments was paid on 12/31/2017 * at 14% Nunavut should record the equipment on the books on 12/31/17 at A. $1,400,000 B. $1,022,000 C. $ 978,000 D. S 10. On January 1, 2018 Avery Corp, the lesse, signed a 10 years lease for machinery. At the end of the lease term the machinery reverts back to the lessor. Avery recorded this lease arrangement as a capital lease. Additional terms of the lease are . Annual payments of $100,000 are made at the beginning of each year for 10 years beginning on January 1, 2018 rate of 8% on January 1, 2018 Avery uses the straight-line method of depreciation for similar machinery The lease payments were determined to have a present value of $671,008 at an effective interest With respect to this lease. Avery should record for year ending 12/31/2018 A Rent expense of $100,000 B. Interest expense of $44,734 and depreciation expense of $38,068 C. Interest expense of $53,681 and depreciation expense of $67,101 D. Interest expense of $45,681 and depreciation expense of $67,101

Explanation / Answer

Requirement 9: A Annual Lease Payment 200000 B Incremental Borrowing Rate 14% C Lease Period (7 years) 7 D PVAF (14%, 7) 4.89 E Present Value (200000*4.89) 978000 Correct Option is C) $978000 Requirement 10: A Present Value 671008 B Interest Expense (671008*8%) 53681 C Useful Life (Years) 10 D Depreciartion Expense (671008/10) 67101 Correct Option is C) Interest Expense $53681 and Depreciation Expense $67101

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