Question

L Leasing Company agrees on Jan. 1, 2012, to rent R Co. the equipment that R...

L Leasing Company agrees on Jan. 1, 2012, to rent R Co. the equipment that R Co. requires to expand its production capacity to meet customers’ demands for its products. The lease agreement calls for five annual lease payment of $200,000 at the end of each year. R Co. has identified this as a capital lease. Furthermore, the company has determined that the present value of the lease payment discounted at 15% (the implicit interest rate) is $670,431. The leased equipment has an estimated useful life of five years and no residual value. R Co. uses the straight-line method for depreciating similar equipment that it owns.

Requirements：

1. Compute interest expense on the income statement for the year ended December 31, 2012

2. Compute depreciation expense on the income statement for the year ended December 31, 2012

3. Compute the principle of lease liability on the balance sheet for the year ended December 31, 2012

4. Compute the value of lease asset on the balance sheet for the year ended December 31, 2012

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