Zens Manufacturing makes koto tone rings for popular kotomakers. To expand capacity, the company decided...
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Zens Manufacturing makes koto tone rings for popular kotomakers. To expand capacity, the company decided to lease a new machine used in tone ring turning and plating from SJP.
Information of the lease terms:
Lease Payment - $65,000 semi-annually at the beginning of each period
Lease Term - 5 years with semi-annual payments, beginning June 30, 2013
Residual Value - $0
Bargain Purchase Option - No
Expected Life of Machine - 5 Years
Implicit Interest Rate - 12%
Fair Value and cost of Asset - $507,110
1) Assume the lessee made a down payment to cover the initial lease payment at the end of 2012 to secure the lease and prior to receiving the asset, creating a temporary book-tax difference for the lessor (this is the only book-tax difference). Using a tax rate of 40%, calculate the amount of the DTA/DTL created for the lessor and prepare the appropriate journal entry to record income taxes at the end of 2012 for the lessor (PTAI of $2.2 million).
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