Tutorial # 8 - Solutions

 

  1. (b)
  2. (d)
  3. (a)
  4. (d)
  5. (c)
6. a) Criteria 4 ( 90% test satisfied because lessee's rate and lessor's rate are the same and residual value is guaranteed

 
 

 

 b) Workings:

Pv of MLP  = 60,000(PVIFA 12%,3) = 144,108

= 5,000 (PVIF 12%,3) = 3,559

Total =  147,667
 

 

 Amortization Schedule:
Year O/B PMT INT PRIN C/B
1 147,667 60,000 17,720 42,280 105,387
2 105,387 60,000 12,646 47,354 58,033
3 58,033 60,000 6,967 53,033 5,000
 

 

  

Depreciation:

(147,667 - 5,000) / 3 = 142,667 / 3 = 47,556 p.a.

i.e. 47,556 for years 1&2 and 47,555 for year 3.

 

Entries:

At inception:

Dr. Leased Asset 147,667
Cr. Lease Obligation 147,667
Year 1
Dr. Interest Expense 17,720
Dr. Lease Obligation 42,280
Cr. Cash 60,000
Dr. Insurance 4,000
Cr. Cash 4,000
Dr. Dep. Exp 47,556
Cr. Acc Dep 47,556
Year 2
Dr. Interest Expense 12,646
Dr. Lease Obligation 47,354
Cr. Cash 60,000
Dr. Insurance 4,000
Cr. Cash 4,000
Dr. Dep. Exp 47,556
Cr. Acc Dep 47,556
Year 3
Dr. Interest Expense 6,967
Dr. Lease Obligation 53,033
Cr. Cash 60,000
Dr. Insurance 4,000
Cr. Cash 4,000
Dr. Dep. Exp 47,555
Cr. Acc Dep 47,555
Dr. Lease Obligation 5,000
Dr. Acc Dep 142,667
Cr. Leased Asset 147,667
(To remove the asset)
c) $58,033

 
d) Total Cash Payments = 60,000 x 3 = 180,000

4,000 x 3=12,000

192,000

 

7. a) There is a bargain purchase option

 
b) Workings:

Pv of MLP  = 50,000(PVIFA 15%,4) = 142,750

= 5,000 (PVIF 15%,4) = 2,859

Total =  145,609
 

 

 Amortization Schedule:
Year O/B PMT INT PRIN C/B
1 145,609 50,000 21,841 28,159 117,450
2 117,450 50,000 17,618 32,382 85,068
3 85,068 50,000 12,760 37,240 47,828
4 47,828 50,000 7,172 42,828 5,000
 

 

  

Depreciation:

(145,609 - 3,000) / 7 = 142,609 / 7 = 20,373 p.a.

i.e. 20,373 for years 1-6 and 20,371, for year 7.

 

Entries:

At inception:

Dr. Leased Asset 145,609
Cr. Lease Obligation 145,609
Year 1
Dr. Interest Expense 21,841
Dr. Lease Obligation 28,159
Cr. Cash 50,000
Dr. Dep. Exp 20,373
Cr. Acc Dep 20,373
Year 2
Dr. Interest Expense 17,618
Dr. Lease Obligation 32,382
Cr. Cash 50,000
Dr. Dep. Exp 20,373
Cr. Acc Dep 20,373
Year 3
Dr. Interest Expense 12,760
Dr. Lease Obligation 37,240
Cr. Cash 50,000
Dr. Dep. Exp 20,373
Cr. Acc Dep 20,373
Year 4
Dr. Interest Expense 7,172
Dr. Lease Obligation 42,828
Cr. Cash 50,000
Dr. Dep. Exp 20,373
Cr. Acc Dep 20,373
Dr. Lease Obligation 5,000
Cr. Cash 5,000
(To exercise option)
c) $85,068

 

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