Werner Chemical, Inc., leased a protein analyzer on September 30, 2018. The five

Question

Werner Chemical, Inc., leased a protein analyzer on September 30, 2018. The five-year lease agreement calls for Werner to make quarterly lease payments of $424,178, payable each September 30, December 31, March 31, June 30 with the first payment at September 30, 2018, Werner's incremental borrowing rate is 16%. Amortization is recorded on a straightline basis at the end of each fiscal year. The useful life of the equipment is five years. (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the present value of the lease payments at September 30, 2018 2. What pretax amounts related to the lease would Werner report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would Werner report in its income statement for the year ended December 31, 2018? 4. What pretax amounts related to the lease would Werner report in its statement of cash flows for the year ended December 31, 2018? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req4 Determine the present value of the lease payments at September 30, 2018. What pretax amounts related to the lease would Werner report in its balance sheet at December 31, 2018 What pretax amounts related to the lease would Werner report in its Income statement for the year ended December 31, 2018? (Round your intermediate and final answers to nearest whole dollar.) Show less Present value 2. Liablity Asset 3. Total expenses Req 4 >

Explanation / Answer

1 Calculation of PV of lease payments $424178 * 13.590326 $5,764,717 PVAD 4% 20 Yrs 2 Liability at Dec 2018 Initial Balance Sep 30 2018 $5,764,717 Sep 2018 reduction ($424,178) Dec 31 2018 reduction ($210,556) Principal Bal for dec Interest Principal Dec 31 2018 net liability $5,129,983 $5,340,539 $213,622 424178 $210,556 Principal reduction Calculation of Depreciation The current and non current position of the liability would be reported separately $5764717/5 yrs*1/4 Asset at Dec 2018 $288,235 Initial balance Sep 30 2018 $5,764,717 Accumulated Depr at Dec 31 2018 ($288,235) Dec 31 2018 Net liability $5,476,482 3 Expenses for the yr ended 31 dec 2018 Sep 30 2018 interest Exp Dec 31 2018 Interest Exp $213,622 Interest Expense for 2018 213622 Depreciation Exp for 2018 $288,235 Total Expenses $501,857 4 Statement of cash flow for yr ended dec 31 2018 Werner would report the $5764717 investment in the protein analyser and its financing with a capital lease as a significant no cash investing and financing activity in the disclosure notes to the financial statements. $424178*2 or $848356 cash lease payments are dividend into the interest portion and the principal portion.The interest portion $213622 is reported as cash outflows from operating activties. The principal portion $424178 +$210556 is reported as cash outflow from financing activities

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