AC 302 Chapter 21 Question AND Problems
Exercise 21 Question 3
Name Date
Instructor Course
Intermediate Accounting 14th Edition by Kieso Weygandt and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E21-3 (Lessee Entries, Capital Lease with Executory Costs and Unguaranteed Residual Value) Assume that on January 1, 2012, Kimberly-Clark Corp. signs a 10-year noncancelable lease agreement to lease a storage building from Trevino Storage Company. The following information pertains to this lease agreement.
1. The agreement requires equal rental payments of $90,000 beginning on January 1, 2012.
2. The fair value of the building on January 1, 2012, is $550,000
"3. The building has an estimated economic life of 12 years, with an unguaranteed residual value of
"
$10,000 Kimberly-Clark depreciates similar buildings on the straight-line method.
4. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor.
5. Kimberly-Clark's incremental borrowing rate is 12% per year. The lessor's
implicit rate is not known by Kimberly-Clark.
6. The yearly rental payment includes $3,088.14 of executory costs related to taxes on the
property.
Instructions:
Prepare the journal entries on the lessee- books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2012 and 2013. Kimberly-Clark- corporate year end is December 31.
Capitalized amount of the lease:
Yearly payment Amount
Executory costs Amount
Minimum annual lease payment Formula
Use the Excel Present Value (=PV) formula to determine the present value.
Jan 1, 12 Account Title Amount
Account Title Amount
Jan 1, 12 Account Title Amount
Account Title Amount
Account Title Amount
Dec 31, 12 Account Title Amount
Account Title Amount
Dec 31, 12 Account Title Amount
Account Title Amount
Jan 1, 13 Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Dec 31, 13 Account Title Amount
Account Title Amount
Dec 31, 13 Account Title Amount
Account Title Amount
Schedule 1: KIMBERLY-CLARK CORPORATION (Lessee)
Lease Amortization Schedule
Annual Payment Less Executory Costs
Date "Annual
Payment
Less
Executory
Costs" "Interest (12%)
on Liability" "Reduction
of
Lease Liability" "Lease
Liability"
Jan 1, 12 Amount
Jan 1, 12 Amount Amount Formula Formula
Jan 1, 13 Amount Formula Formula Formula
Jan 1, 14 Amount Formula Formula Formula
Exercise 21-6
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
E21-6 (Lessor Entries, Sales-Type Lease) Wadkins Company, a machinery dealer, leased a
machine to Romero Corporation on January 1, 2012. The lease is for an 8 -year period
and requires equal annual payments of $38,514 at the beginning of each year. The first
payment is received on January 1, 2012. Wadkins had purchased the machine during 2011 for
$170,000 Collectibility of lease payments is reasonably predictable, and no important
uncertainties surround the amount of costs yet to be incurred by Wadkins. Wadkins set the annual
rental to ensure an 11% rate of return. The machine has an economic life of
10 years with no residual value and reverts to Wadkins at the termination of the lease.
Instructions:
(a) Compute the amount of the lease receivable. (Use the Excel Present Value formula "=PV(" to solve.)
Use this area to enter the Present Value formula
(b) Prepare all necessary journal entries for Wadkins for 2012.
Jan 1, 12 Account Title Amount
Account Title Amount
Account Title Amount
Account Title Amount
Jan 1, 12 Account Title Amount
Account Title Amount
Dec 31, 12 Account Title Amount
Account Title Amount
Problem 21-4
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P21-4 (Balance Sheet and Income Statement Disclosureâ€â€Lessee) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.
Inception date: October 1, 2012
Lease term: 6 years
Economic life of lease equipment: 6 years
Fair value of asset at October 1, 2012: $300,383
Residual value at end of lease term: 0
Lessor's implicit rate: 10%
Lessee's incremental borrowing rate: 10%
"Annual lease payment due at the beginning of each year,
beginning with October 1, 2012:" $62,700
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes
responsibility for all executory costs, which amount to $5,500 per year, and are paid each
October 1, beginning October 1, 2012. (This $5,500 is not included in the rental payment of $62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.
The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-finance lease by the lessor.
Date: Annual lease Payment / Receipt: Interest (10%) on Unpaid Liabililty / Receivable: Reduction of Lease Liability / Receivable: Balance of Lease Liability / Receivable:
10/01/12 300,383
10/01/12 62,700 62,700 237,683
10/01/13 62,700 23,768 38,932 198,751
10/01/14 62,700 19,875 42,825 155,926
10/01/15 62,700 15,593 47,107 108,819
10/01/16 62,700 10,882 51,818 57,001
10/01/17 62,700 5,699* 57,001 0
376,200 70,118 300,383
*Rounding error is $1.
Instructions: (Round to whole dollars.)
"(a) Assuming the lessee's accounting period ends on September 30, answer the following questions
with respect to this lease agreement:"
"(1) What items and amounts will appear on the lessee's income statement for the year ending
September 30, 2013?"
Account Title Amount
Account Title Amount
Account Title Amount
(2) What items and amounts will appear on the lessee's balance sheet at September 30, 2013?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
Title
Account Title Amount
Account Title Amount
"(3) What items and amounts will appear on the lessee's income statement for the year ending
September 30, 2014?"
Account Title Amount
Account Title Amount
Account Title Amount
(4) What items and amounts will appear on the lessee's balance sheet at September 30, 2014?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
Title
Account Title Amount
Account Title Amount
"(b) Assuming the lessee's accounting period ends on December 31, answer the following questions
with respect to this lease agreement:"
"(1) What items and amounts will appear on the lessee's income statement for the year ending
December 31, 2012?"
Account Title Amount
Account Title Amount
Account Title Amount
(2) What items and amounts will appear on the lessee's balance sheet at December 31, 2012?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
"(3) What items and amounts will appear on the lessee's income statement for the year ending
December 31, 2013?"
Account Title Amount
Account Title Amount
Account Title Amount
(4) What items and amounts will appear on the lessee's balance sheet at December 31, 2013?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
Problem 21-5
Name: Date:
Instructor: Course:
Intermediate Accounting, 14th Edition by Kieso, Weygandt, and Warfield
Primer on Using Excel in Accounting by Rex A Schildhouse
P21-5 (Balance Sheet and Income Statement Disclosureâ€â€Lessor) The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system.
Inception date: October 1, 2012
Lease term: 6 years
Economic life of lease equipment: 6 years
Fair value of asset at October 1, 2012: $300,383
Residual value at end of lease term: 0
Lessor's implicit rate: 10%
Lessee's incremental borrowing rate: 10%
"Annual lease payment due at the beginning of each year,
beginning with October 1, 2012:" $62,700
The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes
responsibility for all executory costs, which amount to $5,500 per year, and are paid each
October 1, beginning October 1, 2010. (This $5,500 is not included in the rental payment of $62,700.) The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.
The following amortization schedule has been prepared correctly for use by both the lessor and the lessee in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee and as a direct-finance lease by the lessor.
Date: Annual lease Payment / Receipt: Interest (10%) on Unpaid Liability / Receivable: Reduction of Lease Liability / Receivable: Balance of Lease Liability / Receivable:
10/01/12 300,383.00
10/01/12 62,700.00 62,700.00 237,683.00
10/01/13 62,700.00 23,768.30 38,931.70 198,751.30
10/01/14 62,700.00 19,875.13 42,824.87 155,926.43
10/01/15 62,700.00 15,592.64 47,107.36 108,819.07
10/01/16 62,700.00 10,881.91 51,818.09 57,000.98
10/01/17 62,700.00 5,699.02 57,000.98 0.00
376,200.00 75,817.00 300,383.00
Instructions: (Round to whole dollars.)
"(a) Assuming the lessor's accounting period ends on September 30, answer the following questions
with respect to this lease agreement:"
"(1) What items and amounts will appear on the lessor's income statement for the year ending
September 30, 2013?"
Account Title Amount
(2) What items and amounts will appear on the lessor's balance sheet at September 30, 2013?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
"(3) What items and amounts will appear on the lessor's income statement for the year
ending September 30, 2014?"
Account Title Amount
(4) What items and amounts will appear on the lessor's balance sheet at September 30, 2014?
Title
Account Title Amount
Account Title Amount
Title
Account Title Amount
"(b) Assuming the lessor's accounting period ends on December 31, answer the following questions
with respect to this lease agreement:"
"(1) What items and amounts will appear on the lessor's income statement for the year ending
December 31, 2012?"
Account Title 0 Amount
(2) What items and amounts will appear on the lessor's balance sheet at December 31, 2012?
Title
Account Title Amount
Account Title Amount Formula
Title
Account Title Amount
"(3) What items and amounts will appear on the lessor's income statement for the year ending
December 31, 2013?"
Account Title Amount
(4) What items and amounts will appear on the lessor's balance sheet at December 31, 2013?
Title
Account Title Amount
Account Title Amount Formula
Title
Account Title Amount
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