Werner Chemical, Inc., leased a protein analyzer on September 30, 2016. The five

Question

Werner Chemical, Inc., leased a protein analyzer on September 30, 2016. The five-year lease agreement calls for Werner to make quarterly lease payments of $375,234, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2016. Werner's incremental borrowing rate is 12%. Depreciation is recorded on a straight-line 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 $1) (Use appropriate factor(s) from the tables provided.)

1- Determine the present value of the lease payments at September 30, 2016

Present value=__________

2- What amounts related to the lease would Werner report in its balance sheet at 12/31/16 (ignore taxes)?

Liability=_________

Assets=_________

3- What amounts related to the lease would Werner report in its income statemnt for the year ended 12/31/16 (ignore taxes)?

Total expenses=_________

4- What amounts related to the lease would Werner report in its statment of cash flows for the year ended 12/31/16 (ignore taxes)?

Capital lease=_________
Interest portion=________
Principal portion=_______

Explanation / Answer

Pv of Total asset (lease)

For understanding i will put the anual repayment shedule

1.Present value=$375234 AS on 31/12/2016 2.Liability= 5410538.37-('$5410538.37*12%*6/12) = 5410538.37-324632.30 = 5085906.07    Assets= $5410538.37 Refer working notes 3.Total expenses on 31/12/2016 Total expenses= Finance cost for 6 month 5410538.37*12%*6/12 That is 324632.30 4.on balance sheet at 31/12/2016 Capital lease= 5410538.37 Interest portion=324632.3 Principal portion=425835.7 Workings for calculation of assets Year Total of one year PVF for 12% PV 1 1500936 0.892857 1340121.429 2 1500936 0.797194 1196536.99 3 1500936 0.71178 1068336.598 4 1500936 0.635518 953871.9625 5 1500936 0.567427 851671.3951

Pv of Total asset (lease)

For understanding i will put the anual repayment shedule

Liability Minimum lease payment Interest Principle Outstanding 5410538 1500936 649264.605 851671.4 4558867 4558867 1500936 547064.037 953872 3604995 3604995 1500936 432599.402 1068337 2536658 2536658 1500936 304399.01 1196537 1340121 1340121 1500936 160814.571 1340121 0 5410538.374

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