02 Jul Accounting Question
Assume that David Tennant Industries treated both as operating leases with less than 12 months on the term
– Prepare a schedule of items and their values which will appear on the balance sheet as of 12/31/19 – Prepare a schedule of items and their values which will appear on the income statement for the year ended 12/31/19 – Prepare a schedule of items and their values which will appear on the statement of cash flows for the year ended 12/31/19 (assuming the indirect method)
David Tennant Industries Inc leases TARDIS equipment from Matt Smith Equipment Corp for five years on 1/1/18 at $25,000 per year. The equipment has a five year economic life. Lease payments are due on 12/31 of each year (not on 1/1 of each year). David Tennant Industries does not know Matt’s Smith’s implicit interest rate but their incremental borrowing rate is 5%. The lease conveys no transfer of ownership at the end of the term. There is no purchase option and no guarantee of residual value. Similar assets are depreciated on a straight line basis.
David Tennant Industries also leases a sonic screwdriver from Song Industrial for three years starting 1/1/18. The machine has a fair value of $75,000, a 100 year economic life, and Song Industrial has other uses for it after the lease term. The lease calls for payment of $10,000 a year due on 12/31 of each year. The implicit rate is known and is 5%. The lease conveys no transfer of ownership at the end of the term. There is no purchase option and no guarantee of residual value.
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