Exercise 15-3 Finance lease; lessee; balance sheet and income statement effects

Question

Exercise 15-3 Finance lease; lessee; balance sheet and income statement effects [L015-2) On June 30,2018, Georgia-Allantic, Inc, leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $648.358 over a four-year lease term, payable each June 30 and December 3t, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreclation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $44. (EV ot SL PY ot S1, EVA of S1. PVA of S1.FVAD of S1 and PVAD of S) (Use appropriate factorfs) from the tables Required 1 Determine the present value of the lease payments at June 30, 2018 thet Georgia-Atlantic uses to record the right-of-use asset and lease liability 2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, For all requirements, enter your answers in whole dollars and not in millions. Round your final answer to nearest whole dellar) amount for lability mount t for amortization Pre 1 of 3 Next 2 3 4

Explanation / Answer

Problem 1

1. Calculation of Present Value of Lease payment

=$648,358*6.4632

=$4,190,474

2.A.Pre tax amount of liability=

cash liability in first payment=$648,358

Second Installment=$(648,358-interest)

*interest= 5%*(4190,474-6648,358)=$177,105

Hence, for second payment= $(648,358-177,105)=$471,252

Pre tax liability= $(4,190,474-648,358-471,252)=$3,070,864

B. Pre tax right to use= $(4,190,4748*7/8)=$3,666,665 approx.

3.A. Interest expense

First due=0

Second Due= 5%*(4190,474-6648,358)=$177,105

Total Interest expense=$177,105

B. Pre tax amount for amortization expense=

=$4,190,474/8=$5,23,809.

Problem 3

1.For the first year the lease will effect the income of Cafe Med to reduce by the the annual payment i.e.$22,000.

As per the answering policy First 4 questions are answered

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