Summarizing the lease payments and interest expense

Reference no: EM13143667

The Lotus Corporation signs a lease agreement dated January 1, 2010 that provides for it to lease equipment from Dragon Company beginning January 1, 2010. The lease terms, provisions, and related events are as follows:

The lease is noncancelable and has a term of five years. The annual rentals are $83,222.92, payable at the end of each year, and provide Dragon with a 12% annual rate of raturn on its net investment. The Lotus Corporation agress to pay all executory costs at the end of each year. In 2010, these were insurance, $3,760; property taxes, $5,440. In 2011: insurance, $3,100; property taxes, $5,330. There is no renewal or bargain purchase option.

Lotus estimates that the equipment has a fair value of $300,000, an economic life of five years, and a zero residual value. Lotus' incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straight-line method to record depreciation on similar equipment.

Required:

1. Calculate the amount of the asset and liability of Lotus Company at the inception of the lease. (Round to the nearest
dollar.)

2. Prepare a table summarizing the lease payments and interest expense.

3. Prepare journal entries on the books of Lotus for 2010 and 2011.

4. Prepare a partial balance sheet in regard to the lease for Lotus for December 21, 2010.

5. If the lease term is three years and the annual payment is $120,000, how would Lotus classify the lease under (a) U.S.GAAP and (b) IFRS?

Reference no: EM13143667

Questions Cloud

Net periodic pension cost reported in the income statement : The net periodic pension cost reported in the income statement for 2011 would be

Consider the meaning of the term ecology : Consider the meaning of the term "ecology." How do the ideas of energy and chemical cycles, community structure, biodiversity and succession fit together to form the basis of the way the natural world works?

Self-actualization. : In your own words, (a) give an overview of humanistic psychology's theory of personality (6 points). Also in your own words (b) describe and explain the humanistic terms self-concept, congruence, unconditional positive regard, and self-actualization.

Calculate test statistic for testing the null hypothesis : Calculate the test statistic for testing the null hypothesis. The slass mean will be not be signfically different from the population mean. What is your decision about the null hypothesis?"

Summarizing the lease payments and interest expense : Calculate the amount of the asset and liability of Lotus Company at the inception of the lease. (Round to the nearest dollar.) Prepare a table summarizing the lease payments and interest expense.

Explain at least two symptoms for each enzyme deficiency : Outline how thiamine is converted into the usable cofactor and what its role is in each of the three enzyme systems. 2. For each of the three enzyme systems.

Discuss the flat and segmented memory models : Discuss the flat and segmented memory models and provide an example

Effect of the contractionary policy on aggregate demand : In the long-run, how would the solution of someone who favoured an active policy approach to an expansionary gap differ from that of someone who favoured a passive approach to policy?

How to support the ceo-s claim : A random sample of 35m of the firm's accountants has a mean workday of 8.2 hours with a standard deviation of 0.5 hour. At α = 0.01, can you support the CEO's claim?

User Account

All Pages