At January 1, 2016, Café Med leased restaurant equipment from Crescent Corporati

Question

At January 1, 2016, Café Med leased restaurant equipment from Crescent Corporation under a(n) eight-year lease agreement. The lease agreement specifies annual payments of $23,000 beginning January 1, 2016, the beginning of the lease, and at each December 31 thereafter through 2023. The equipment was acquired recently by Crescent at a cost of $173,000 (its fair value) and was expected to have a useful life of 12 years with no residual value. The company seeks a 11% return on its lease investments. By this arrangement, the risks and rewards of ownership are deemed to have been transferred to the lessee. (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.) Respond to the question with the presumption that the guidance provided by the proposed Accounting Standards Update is being applied. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)?

I followed various examples and can't seem to get the correct answer. Please provide the work so I may work through it myself as well. Thank you!

Explanation / Answer

Year Discounting factor @ 11% amount dicounted lease rent IF purchase Depreciation 1/1/2016 1 23000 23000 14416.67 31/12/16 0.901 23000 20723 14416.67 31/12/17 0.812 23000 18676 14416.67 31/12/18 0.731 23000 16813 14416.67 31/12/19 0.659 23000 15157 14416.67 31/12/20 0.593 23000 13639 14416.67 31/12/21 0.535 23000 12305 14416.67 31/12/22 0.482 23000 11086 14416.67 31/12/23 0.434 23000 9982 14416.67 141381

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