On January 1, 2011, Packard Corporation leased equipment to Hewlitt Company. The
ID: 2414885 • Letter: O
Question
On January 1, 2011, Packard Corporation leased equipment to Hewlitt Company. The lease term is 8years. The first payment of $450,000 was made on January 1, 2011. Remaining payments are made onDecember 31 each year, beginning with December 31, 2011. The equipment cost Packard Corporation$2,400,000. The present value of the minimum lease payments is $2,640,000. The lease is appropriatelyclassified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balancereported as a liability by Hewlitt in the December 31, 2012, balance sheet?
Explanation / Answer
This is a Capital Lease
Total Present value of lease rent 2640000 Cost of Asset 2400000 240000 Total term of lease 8 years Intt (assumed to be distibuted equally) 30000 Jan1 2011 Equipment Dr 2640000 To Capital Lease A/c Cr 2640000 31-Dec-11 Capital lease A/c Dr 420000 Interest A/c Dr 30000 To Packard Corporation Cr 450000 31-Dec-12 Capital lease A/c Dr 420000 Interest A/c Dr 30000 To Packard Corporation Cr 450000 InBalance Sheet Capital lease A/c 1800000 (As Liability)Related Questions
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