Question

On July 1, 2017, Shroff Company leased a warehouse building under a 15-year lease agreement. The lease requires quarterly lease payments of $5,000. The first lease payment is due on September 30, 2017. The lease was reported as a capital lease using a 6% annual interest rate.

Required

a. Prepare a financial statement effects template to show the effects of recording the initial signing of the lase on July 1, 2017 and the necessary entries on September 30 and December 31, 2017.

Balance Sheet
Transaction	Cash Asset	+	Noncash Assets	-	Contra-Assets	=	Liabilities	+	Contrib. Capital	+	Earned Capital
7/1/17 Signed a capital lease	$Answer	+	$Answer	-	$Answer	=	$Answer	+	$Answer	+	$Answer
9/30/17 Depreciation on leased asset	Answer	+	Answer	-	Answer	=	Answer	+	Answer	+	Answer
9/30/17 Made quarterly lease payment	Answer	+	Answer	-	Answer	=	Answer	+	Answer	+	Answer
12/31/17 Depreciation on leased asset	Answer	+	Answer	-	Answer	=	Answer	+	Answer	+	Answer
12/31/17 Made quarterly lease payment	Answer	+	Answer	-	Answer	=	Answer	+	Answer	+	Answer

Income Statement
	Revenue	-	Expenses	=	Net Income
	$Answer	-	$Answer	=	$Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answer
	Answer	-	Answer	=	Answe

Answer 1

BALANCE SHEET							INCOME STATEMENT
Transaction	Cash Assets+	Non-cash Assets-	Contra-assets =	Liabilities+	Contributed Capital+	Earned Capital	Revenue-	Expenses=	Net Income
July,1, 2017- Signed A capital Lease	0	$196,900	0	$196,900
Sep,30,2017- Depn. On Leased asset ($196900/15*3/12)	0	0	($3,282)	0		($3,282)	0	$3,282	($3,282)
Sep,30,2017- Qrtrly. Leased Payment	($5,000)			($2,046.50)		($2,953.50)	0	$2,953.50	-2953.5
Dec 31,2017- Depn. On Leased asset			($3,282)			($3,282)	0	$3,282	($3,282)
Dec 31,2017- Qrtrly. Leased Payment	($5,000)			-2077.2		-2922.8	0	$2,922.80	-2922.8
Total	-10000	196900	-6564	192776.3	0	-12440.3	0	12440.3	-12440.3
ASSET/LIABILITY Total			180336			180336

Working Note:-

Finding the PV of the lease with 5000 as PMt. At 6%/4=1.5% interest for 15*4=60 periods

5000X Cumm PVAF @1.5%for( 1-60 )= (39.380X5000)=196900