Question

The following facts pertain to a non-cancellable lease agreement between Woodhouse Leasing Corporation and Concord Electronics Ltd., a lessee, for a computer system:

Inception date		October 1, 2020
Lease term		6 years
Economic life of leased equipment		6 years
Fair value of asset at October 1, 2020		$149,135
Residual value at end of lease term		—0—
Lessor's implicit rate		9.0%
Lessee's incremental borrowing rate		9.0%
Annual lease payment due at the beginning of each year, beginning October 1, 2020		$30,500

The collectibility of the lease payments is reasonably predictable, and there are no important uncertainties about costs that have not yet been incurred by the lessor. Concord Electronics Ltd., the lessee, assumes responsibility for all repairs and maintenance costs, which amount to $2,500 per year and are to be paid each October 1, beginning October 1, 2020, by the lessee directly to the suppliers. The asset will revert to the lessor at the end of the lease term. The straight-line depreciation method is used for all equipment.

The following amortization schedule for the lease obligation has been prepared correctly for use by both the lessor and the lessee in accounting for this lease using ASPE. The lease is accounted for properly as a capital lease by the lessee and as a direct financing lease by the lessor.

Date		Annual Lease Payment/ Receipt				Interest (9.0%) on Unpaid Obligation/ Net Investment				Reduction of Lease Obligation/ Net Investment				Balance of Lease Obligation/ Net Investment
10/01/20														$	149,135
10/01/20		$	30,500			$	—0—			$	30,500				118,635
10/01/21			30,500				10,677				19,823				98,812
10/01/22			30,500				8,893				21,607				77,205
10/01/23			30,500				6,948				23,552				53,653
10/01/24			30,500				4,829				25,671				27,982
10/01/25			30,500				2,518				27,982				—0—
		$	183,000			$	33,865			$	149,135

Assuming that Concord Electronics’ accounting period ends on September 30, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places, e.g. 5,275.)

1. What items and amounts will appear on the lessee’s income statement for the year ended September 30, 2021?

Concord Electronics Ltd.
Income Statement - Partial
                                                                      For the Year ended September 30, 2021For the Month Ended September 30, 2021September 30, 2021

$

2. What items and amounts will appear on the lessee’s balance sheet at September 30, 2021?

Concord Electronics Ltd.
Balance Sheet - Partial

3. What items and amounts will appear on the lessee’s income statement for the year ended September 30, 2022?

Concord Electronics Ltd.
Income Statement - Partial

What items and amounts will appear on the lessee’s balance sheet at September 30, 2022?

Concord Electronics Ltd.
Balance Sheet - Partial

Assuming that Concord Electronics’ accounting period ends on December 31, answer the following questions with respect to this lease agreement. (Round answers to 0 decimal places, e.g. 5,275.)

1. What items and amounts will appear on the lessee’s income statement for the year ended December 31, 2020?

Concord Electronics Ltd. Income Statement - Partial                                                                       December 31, 2020For the Month Ended December 31, 2020For the Year ended December 31, 2020
		$

2. What items and amounts will appear on the lessee’s balance sheet at December 31, 2020?

Concord Electronics Ltd.
Balance Sheet - Partial

. What items and amounts will appear on the lessee’s income statement for the year ended December 31, 2021?
What items and amounts will appear on the lessee’s balance sheet at December 31, 2021?

Answer 1

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