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Financial statement impact of a lease

On January 1, 2017, Kiger Manufacturing company leased a factory machine for six years. Annual payments of $21,980 are to be made every December 31 beginning December 31, 2017. Interest expense is based on the rate of 9%. The present value of the minimum lease payments is $90,600 and has been determined to be greater than 90% of the fair market value of the machine on January 1, 2017. Kiger uses straight-line depreciation on all assets.

1. Prepare a table to show the six year amortization of the lease obligation. Enter all amounts as positive numbers. Round all amounts to the nearest whole dollar. If your answer is zero enter 0.

*Note: due to rounding you will have to adjust the interest expense for 12 3122 in order to result in a zero balance for the lease obligation.

Kiger Manufacturing Company

Effective interest method of amortization

Date Lease Payment Interest Expense 9% Reduction of Obligation Lease obligation

1/1/17

12/31/17

12/31/18

12/31/19

12/31/20

12/31/21

12/31/22

2. Identify and analyze the effect of the lease transaction on January 1, 2017.

Activity ________________

Accounts ______________

Statement(s)____________

How does this entry affect the accounting equation?

If a financial statement item is not affected select no entry and leave the amount box blank if the effect on a financial statement item is negative, be sure to enter answer with a -.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders equity Revenues - Expenses = Net Income

___________ ( ) ___________ ( ) ___________ ( ) ___________ ( )

3. Identify and analyze the effect of all transactions on December 31, 2018 (the second year of the lease)

a. For interest expense

Activity ________________

Accounts ______________

Statement(s)____________

Balance Sheet Income Statement

Assets = Liabilities + Stockholders equity Revenues - Expenses = Net Income

___________ ( ) ___________ ( ) ___________ ( ) ___________ ( )

b. For depreciation expense

Activity ________________

Accounts ______________

Statement(s)____________

How does this entry affect the accounting equation? If a financial statement item is not affected, select no entry and leave the amount box blank. If the effect on the financial statement item is negative, a decrease, be sure to answer B answer with a minus sign. Remember, if a contra account is increased, it will have the effect of decreasing the corresponding financial statement item. Round your answer to the nearest whole dollar.

Balance Sheet Income Statement

Assets = Liabilities + Stockholders equity Revenues - Expenses = Net Income

___________ ( ) ___________ ( ) ___________ ( ) ___________ ( )

4. Prepare the balance sheet presentation as of December 31, 2018 for the leased asset and the lease obligation. Round all amounts to the nearest whole dollar.

Kiger manufacturing company

Balance sheet (partial)

December 31, 2018

Long term assets:

______________ $______

______________ ______

$______

Current liabilities:

______________ $______

Long term liabilities:

______________ $______

Answer & Explanation Solved by verified expert

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