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Concept explainers
Lessor’s initial direct costs; operating and sales-type leases
• LO15–2, LO15–3, LO15–4, LO15–7
Terms of a lease agreement and related facts were:
a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line
b. Annual lease payments at the beginning of each year were $20,873, beginning January 1.
c. Lessor’s implicit rate when calculating annual rental payments was 10%.
d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor.
Required:
Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions:
1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease).
2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to 9%.
3. The lease term is six years and the lessor paid $85,000 to acquire the asset.
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Chapter 15 Solutions
Intermediate Accounting
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