On June 30, 2016, Blue, Inc., leased a machine from Big Leasing Corporation. The lease agreement...

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Accounting

On June 30, 2016, Blue, Inc., leased a machine from Big LeasingCorporation. The lease agreement qualifies as a capital lease andcalls for Blue to make semiannual lease payments of $214,208 over afour-year lease term, payable each June 30 and December 31, withthe first payment at June 30, 2016. Blue’s incremental borrowingrate is 12%, the same rate Big uses to calculate lease paymentamounts. Depreciation is recorded on a straight-line basis at theend of each fiscal year. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) fromthe tables provided.)
1. Determine the present value of the leasepayments at June 30, 2016, (to the nearest $000) that Blue uses torecord the leased asset and lease liability.
Present Value:
2. What would be the pretax amounts related to the lease thatBlue would report in its balance sheet at December 31, 2016?
Leased asset:
Leased liability:
3. What would be the pretax amounts related to the lease thatBlue would report in its income statement for the year endedDecember 31, 2016?
Pretax amount:

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3.7 Ratings (359 Votes)

1 Computation of present value of lease payment at June 30 2016 Present value Semiannual lease payment X Present value Annuity Dueo of 1 n8 i6 214208 X 658238 1409998 or 1410000 rounded off Note Payments are done semiannually Therefore See Answer

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On June 30, 2016, Blue, Inc., leased a machine from Big LeasingCorporation. The lease agreement qualifies as a capital lease andcalls for Blue to make semiannual lease payments of $214,208 over afour-year lease term, payable each June 30 and December 31, withthe first payment at June 30, 2016. Blue’s incremental borrowingrate is 12%, the same rate Big uses to calculate lease paymentamounts. Depreciation is recorded on a straight-line basis at theend of each fiscal year. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) fromthe tables provided.)1. Determine the present value of the leasepayments at June 30, 2016, (to the nearest $000) that Blue uses torecord the leased asset and lease liability.Present Value:2. What would be the pretax amounts related to the lease thatBlue would report in its balance sheet at December 31, 2016?Leased asset:Leased liability:3. What would be the pretax amounts related to the lease thatBlue would report in its income statement for the year endedDecember 31, 2016?Pretax amount: