Another Lease Question- Operating- Lessee-

Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • #3008379 Reply
    jdl
    Participant

    On the below question- can someone provide the journal entries to get to the solution. Thanks everyone!

    In the long-term liabilities section of its balance sheet at December 31, Year 3, Mene Co. reported a finance lease liability of $75,000, net of current portion of $1,364. Payments of $9,000 were made on both January 2, Year 4, and January 2, Year 5. Mene’s incremental borrowing rate on the date of the lease was 11%, and the lessor’s implicit rate, which was known to Mene, was 10%. In its December 31, Year 4, long-term liabilities section of the balance sheet, what amount should Mene report as a finance lease liability, net of current portion?

    #3059862 Reply
    DS
    Participant

    The total lease liability at the end of year 3 is $76,364 so they should have $7,636 of accrued interest payable on the lease due with the payment on January 2, year 4. The accrued interest is calculated using the 10% rate implicit in the lease since it is known to the lessee. The difference between accrued interest and the $9,000 payment is the current portion of the lease at the end of year 3, or $1,364. This reduces the lease liability to $75,000 and thus at the end of year 4 there will be $7,500 in accrued interest payable. Thus the current portion of the liability at the end of the year will be $1,500 (9,000 – 7,500) and the noncurrent portion is $73,500.

    Journal entries:

    12/31/03:
    Interest Expense      7,636
       Interest Payable          7,636
    
    1/2/04:
    Lease Liability       1,364
    Interest Payable      7,636
       Cash                      9,000
    
    12/31/04:
    Interest Expense      7,500
       Interest Payable          7,500
    
    1/2/05:
    Lease Liability       1,500
    Interest Expense      7,500
       Cash                      9,000
    
Viewing 2 posts - 1 through 2 (of 2 total)
Reply To: Another Lease Question- Operating- Lessee-

You can use BBCodes to format your content.
Your account can't use Advanced BBCodes, they will be stripped before saving.

Your information:




Return to Forum Home