The following facts pertain to a noncancelable lease agreement between Alschuler

Question

The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date: October 1, 2012 Lease term: 6 years Economic life of lease equipment: 6 years Fair value of asset at October 1, 2012: $300,383 Residual value at end of lease term: 0 Lessor's implicit rate: 10% Lessee's incremental borrowing rate: 10% Annual lease payment due at the beginning of each year,
       beginning with October 1, 2012: $62,700 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $5,500 per year, and are paid each October 1, beginning October 1, 2012. (This $5,500 is not included in the rental payment of $62,700.)
The asset will revert to the lessor at the end of the lease term.
The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee
in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee
and as a direct-finance lease by the lessor. Date: Annual lease Payment / Receipt: Interest (10%) on Unpaid Liabililty / Receivable: Reduction of Lease Liability / Receivable: Balance of Lease Liability / Receivable: 10/01/12 300,383.00 10/01/12 62,700.00 62,700.00 237,683.00 10/01/13 62,700.00 23,768.30 38,931.70 198,751.30 10/01/14 62,700.00 19,875.13 42,824.87 155,926.43 10/01/15 62,700.00 15,592.64 47,107.36 108,819.07 10/01/16 62,700.00 10,881.91 51,818.09 57,000.98 10/01/17 62,700.00 5,699.02 57,000.98 0.00 376,200.00 75,817.00 300,383.00 Instructions: (a) Assuming the lessee's accounting period ends on September 30, answer the following questions
     with respect to this lease agreement: (1) What items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2013? Interest expense (See amortization schedule) $23,768.30 Lease executory expense $5,500.00 Depreciation expense Amount (2) What items and amounts will appear on the lessee's balance sheet at September 30, 2013? Current liabilities: Lease liability $38,931.70 Account Title Amount Long-term liabilities: Account Title Amount Property, plant, and equipment: Account Title $300,383.00 Account Title Amount (3) What items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2014? Interest expense (See amortization schedule) Amount Account Title Amount Account Title Amount (4) What items and amounts will appear on the lessee's balance sheet at September 30, 2014? Current liabilities: Account Title Amount Account Title Amount Long-term liabilities: Account Title $155,926.43 Property, plant, and equipment: Leased computer under capital lease Amount Account Title Amount (b) Assuming the lessee's accounting period ends on December 31, answer the following questions
     with respect to this lease agreement: (1) What items and amounts will appear on the lessee's income statement for the year ending
      December 31, 2012? Interest expense $5,942.08 Account Title Amount Account Title Amount (2) What items and amounts will appear on the lessee's balance sheet at December 31, 2012? Current liabilities: Account Title Amount Account Title Amount Long-term liabilities: Account Title Amount Property, plant, and equipment: Leased computer under capital lease $300,383.00 Account Title Amount Current assets: Account Title Amount (3) What items and amounts will appear on the lessee's income statement for the year ending
     December 31, 2013? Interest expense Amount Account Title Amount Account Title Amount (4) What items and amounts will appear on the lessee's balance sheet at December 31, 2013? Current liabilities: Lease liability $42,824.87 Account Title Amount Long-term liabilities: Lease liability Amount Property, plant, and equipment: Leased computer under capital lease $300,383.00 Account Title Amount Current assets: Account Title Amount The following facts pertain to a noncancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a lessee, for a computer system. Inception date: October 1, 2012 Lease term: 6 years Economic life of lease equipment: 6 years Fair value of asset at October 1, 2012: $300,383 Residual value at end of lease term: 0 Lessor's implicit rate: 10% Lessee's incremental borrowing rate: 10% Annual lease payment due at the beginning of each year,
       beginning with October 1, 2012: $62,700 The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs, which amount to $5,500 per year, and are paid each October 1, beginning October 1, 2012. (This $5,500 is not included in the rental payment of $62,700.)
The asset will revert to the lessor at the end of the lease term.
The straight-line depreciation method is used for all equipment. The following amortization schedule has been prepared correctly for use by both the lessor and the lessee
in accounting for this lease. The lease is to be accounted for properly as a capital lease by the lessee
and as a direct-finance lease by the lessor. Date: Annual lease Payment / Receipt: Interest (10%) on Unpaid Liabililty / Receivable: Reduction of Lease Liability / Receivable: Balance of Lease Liability / Receivable: 10/01/12 300,383.00 10/01/12 62,700.00 62,700.00 237,683.00 10/01/13 62,700.00 23,768.30 38,931.70 198,751.30 10/01/14 62,700.00 19,875.13 42,824.87 155,926.43 10/01/15 62,700.00 15,592.64 47,107.36 108,819.07 10/01/16 62,700.00 10,881.91 51,818.09 57,000.98 10/01/17 62,700.00 5,699.02 57,000.98 0.00 376,200.00 75,817.00 300,383.00 Instructions: (a) Assuming the lessee's accounting period ends on September 30, answer the following questions
     with respect to this lease agreement: (1) What items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2013? Interest expense (See amortization schedule) $23,768.30 Lease executory expense $5,500.00 Depreciation expense Amount (2) What items and amounts will appear on the lessee's balance sheet at September 30, 2013? Current liabilities: Lease liability $38,931.70 Account Title Amount Long-term liabilities: Account Title Amount Property, plant, and equipment: Account Title $300,383.00 Account Title Amount (3) What items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2014? Interest expense (See amortization schedule) Amount Account Title Amount Account Title Amount (4) What items and amounts will appear on the lessee's balance sheet at September 30, 2014? Current liabilities: Account Title Amount Account Title Amount Long-term liabilities: Account Title $155,926.43 Property, plant, and equipment: Leased computer under capital lease Amount Account Title Amount (b) Assuming the lessee's accounting period ends on December 31, answer the following questions
     with respect to this lease agreement: (1) What items and amounts will appear on the lessee's income statement for the year ending
      December 31, 2012? Interest expense $5,942.08 Account Title Amount Account Title Amount (2) What items and amounts will appear on the lessee's balance sheet at December 31, 2012? Current liabilities: Account Title Amount Account Title Amount Long-term liabilities: Account Title Amount Property, plant, and equipment: Leased computer under capital lease $300,383.00 Account Title Amount Current assets: Account Title Amount (3) What items and amounts will appear on the lessee's income statement for the year ending
     December 31, 2013? Interest expense Amount Account Title Amount Account Title Amount (4) What items and amounts will appear on the lessee's balance sheet at December 31, 2013? Current liabilities: Lease liability $42,824.87 Account Title Amount Long-term liabilities: Lease liability Amount Property, plant, and equipment: Leased computer under capital lease $300,383.00 Account Title Amount Current assets: Account Title Amount

Explanation / Answer

Answer a (1)

Items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2013

50064

Answer a (2)

Items and amounts will appear on the lessee's balance sheet at September 30, 2013

Property, plant, and equipment:

Answer (a) 3

Items and amounts will appear on the lessee's income statement for the year ending
     September 30, 2014

50064

Answer (a) 4

Items and amounts will appear on the lessee's balance sheet at September 30, 2014

Property, plant, and equipment:

Answer b (1).

items and amounts will appear on the lessee's income statement for the year ending December 31, 2012

Answer b (2)

Items and amounts will appear on the lessee's balance sheet at December 31, 2012

Property, plant, and equipment:

Answer b (3)

Items and amounts will appear on the lessee's income statement for the year ending December 31, 2013

Answer b (4)

Items and amounts will appear on the lessee's balance sheet at December 31, 2013

Property, plant, and equipment:

PArticulars Amount Interest expense (See amortization schedule) 23768 Lease executory expense 5500 Depreciaton Expense

50064

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