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Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $

Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter19: Lease And Intermediate-term Financing
Section: Chapter Questions
Problem 1P
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Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $
Transcribed Image Text:Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $30,000 lease payments at the end of each year. HPB's cost of debt is 13%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $
TABLE 19-1 Financial Reporting for Leases Part 1: Preliminary Calculations Lease liability balance² Imputed interest expenseb Lease payment Part 2: Reporting an Operating Lease Lease liability balance Right-of-use asset balance Lease expensed Part 3: Reporting a Finance Lease Lease liability balance Right-of-use asset balance Interest expense Amortization expenses Total lease expense Year 0 $26,730 Year 0 $26,730 $26,730 Year 0 $26,730 $26,730 Year 1 $18,334 $ 1,604 $10,000 Year 1 $18,334 $18,334 $10,000 Year 1 $18,334 $ 17,820 $ 1,604 $ 8,910 $10,514 Year 2 $ 9,434 $ 1,100 $10,000 Year 2 $ 9,434 $ 9,434 $10,000 Year 2 $ 9,434 $ 8,910 $ 1,100 $ 8,910 $10,010 Year 3 $0 $ 566 $10,000 Year 3 $0 $0 $10,000 Year 3 $0 $ 0 $566 $8,910 $9,476 Source: See the file Ch19 Tool Kit.xlsx. Numbers in the table are shown as rounded values for clarity in reporting. However, unrounded values are used for all calculations. Notes: "The lease liability in Year O is equal to the initial lease liability. For subsequent years, the lease liability balance is equal to the previous balance plus the imputed interest minus the lease payment. *The imputed interest for the end of Yeart is equal to the cost of debt (r) multiplied by the lease liability payment at the beginning of Year t. The right-of-use asset balance for an operating lease is equal to the lease liability balance. *The lease expense for an operating lease is equal to the lease payment. *The right-of-use balance for a finance lease is equal to the previous balance minus the amortization charge. 'The interest expense for a finance lease is equal to the imputed interest. The amortization charge for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease.
Transcribed Image Text:TABLE 19-1 Financial Reporting for Leases Part 1: Preliminary Calculations Lease liability balance² Imputed interest expenseb Lease payment Part 2: Reporting an Operating Lease Lease liability balance Right-of-use asset balance Lease expensed Part 3: Reporting a Finance Lease Lease liability balance Right-of-use asset balance Interest expense Amortization expenses Total lease expense Year 0 $26,730 Year 0 $26,730 $26,730 Year 0 $26,730 $26,730 Year 1 $18,334 $ 1,604 $10,000 Year 1 $18,334 $18,334 $10,000 Year 1 $18,334 $ 17,820 $ 1,604 $ 8,910 $10,514 Year 2 $ 9,434 $ 1,100 $10,000 Year 2 $ 9,434 $ 9,434 $10,000 Year 2 $ 9,434 $ 8,910 $ 1,100 $ 8,910 $10,010 Year 3 $0 $ 566 $10,000 Year 3 $0 $0 $10,000 Year 3 $0 $ 0 $566 $8,910 $9,476 Source: See the file Ch19 Tool Kit.xlsx. Numbers in the table are shown as rounded values for clarity in reporting. However, unrounded values are used for all calculations. Notes: "The lease liability in Year O is equal to the initial lease liability. For subsequent years, the lease liability balance is equal to the previous balance plus the imputed interest minus the lease payment. *The imputed interest for the end of Yeart is equal to the cost of debt (r) multiplied by the lease liability payment at the beginning of Year t. The right-of-use asset balance for an operating lease is equal to the lease liability balance. *The lease expense for an operating lease is equal to the lease payment. *The right-of-use balance for a finance lease is equal to the previous balance minus the amortization charge. 'The interest expense for a finance lease is equal to the imputed interest. The amortization charge for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease.
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