FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text:At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement.
⚫The lease agreement specifies annual payments of $25,000 beginning January 1, 2024, the beginning of the lease, and on each
December 31 thereafter through 2031.
The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of
12 years with no salvage value at the end of its life.
Because the lease term is only nine years, the asset does have an expected residual value at the end of the lease term of
$50,995.
• Crescent seeks a 10% return on its lease investments.
By this arrangement, the lease is deemed to be a finance lease.
Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1, FVAD of $1 and PVAD of $1)
Required:
1. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)?
Note: Enter decreases with negative sign.
2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Café Med (ignore
taxes)?
Note: For all requirements, round your intermediate calculations and final answers to the nearest whole dollars.
Answer is complete but not entirely correct.
1. Effect on earnings
2. Lease payable balance (end of year)
$ (25,000)
$ 121,710
2. Right-of-use asset balance (end of year)
$146,710
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