Dunont Corporation, a lessor of office furniture, purchased à new machine for De

Question

Dunont Corporation, a lessor of office furniture, purchased à new machine for December 31,2003, which was delivered same day to Finely Company, the PROBLEM II lessee. The following information relating to the lease transaction is avaliable: e leased esset has an estimated useful life of t0 years . At the end of the lease term, the machine will revert to Dumont, at which time t is expected to have a residual value of $60,000 (unguaranteed ) Dumont's implicit interest rate is 10% , which is known by Finely. Finely's incremental borrowing rate is 11% at December 31,2003. Lease rental consists of eight equal payments, the first of which was paid on December 31, . . . 2003 Both lessor and lessee are calendar-year corporation and depreciate all fixed assets on the straight-line basis. Information on present value factors is as follows: 466 Present value of $1 for eight periods at 10% Present value of $1 for eight periods at 11% Present value of an annulty due of 1 for eight periods at 10% Present value of an annuity due of 1 for eight periods at 11% 433 5.868 5.712 - Required: A: 1) Compute the annual rental under the lease. 2) Compute the amounts of the following that Dumont should disclose at the inception of the lease on December 31, 2003: a) Gross lease investment b) Uneamed interest revenue 3) Caiculate the expense that Finely should record for the year ended December 31, 2004 B) Prepare all journal entries on the books of Dumont Corp. and Finely Corp. for Years Ended December 31, 2003 and December 31, 2004

Explanation / Answer

ANSWER TO PROBLEM III:

YEAR PARTICULARS DEBIT CREDIT NARATION 2000 INCOME TAX 120000 BEING INCOME TAX @30% TO INCOME TAX PAYABLE 120000 ON SURPLUS OF 400000 2001 INCOME TAX 70000 BEING INCOME TAX @35% TO INCOME TAX PAYABLE 70000 ON SURPLUS OF 200000 2002 INCOME TAX 122500 BEING INCOME TAX @35% TO INCOME TAX PAYABLE 122500 ON SURPLUS OF 350000 2003 NO ENTRY DUE TO LOSS LOSS OF 700000 WILL BE CARRIED FORWARD FOR 8 FINANCIAL YEARS 2004 NO ENTRY SURPLUS IS ADJUSTED AGAINST PREVIOUS YEAR LOSS.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.