PROBLEM V On January 1 2018 Lancer Corporation leased equipment from Crescent Co

Question

PROBLEM V On January 1 2018 Lancer Corporation leased equipment from Crescent Corp under a ten-year lease agreement specifying annual payments of $30,000 beginning January 1, 2018, and at each December 31 thereafter through 2026 The equipment had a cost of $180,000 and was expected to have a useful life of 13 years with no residual value. Crescent seeks a 12% return on its lease investments. By this agreement, the lease is deemed to be an operating lease. Present Value of an annuity due of 1 for 10 periods at 12% Present value of an ordinary annuity of 1 for 10 periods at 12% Present value of 1 for 10 periods at 12%..........................- 6.32825 5.65022 0.32197 Required a) Compute Lancer's lease liability. b) Compute total lease expense for 2018 to be reported on Income statement. C) Determine the amount et amartion epense for the Year?01 8.

Explanation / Answer

1. Calculation of lancer's lease liablity

Annual lease payment = $30000

Present Value = 1 for 10 years at 12 % = 6.32825

Lease liablity = $30000*6.32825 = $189847.5

2.Lease expnses for 2018

Payment made on 1 jan= $30000*1(PV factor) =30000

+ 31 december = $30000*0.9090 =27272

Total expense for year = 57272
3.Amortisation expenses

Total value of equipement = $180000

Useful life = 13 years

Salvage value = 0

Amortisation expense for year = $180000/13 = $13846

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