On January 1, 2018, Digital, Inc. leased heavy machinery from Young Leasing Comp
ID: 2583253 • Letter: O
Question
On January 1, 2018, Digital, Inc. leased heavy machinery from Young Leasing
Company. The terms of the lease require annual payments of $10,000 for ten
years beginning on December 31, 2018. The interest rate on the lease is 20%.
Assume the lease qualifies as a capital lease and Digital, Inc. employs the
double-declining balance method to depreciate its assets.
Calculate the balance in the lease liability account on December 31, 2019
after the second lease payment is made. Enter your answer with two places
after the decimal point (i.e., $123,987.60).
You will need to use the time value of money table factors posted in canvas
to answer this question. To access these factors, click modules and then
scroll to week 12. Click on the link labeled present & future value table
factors. No credit will be awarded for this question using a means other
than these table factors to answer this question.
Explanation / Answer
Capital Lease Liability Account Date Particulars Amount Date Particulars Amount 1/1/2018 To Machinery A/c $ 100,000 31/12/2018 By Accounbt Payable A/c $ 8,000 31/12/2018 By Balance c/f $ 92,000 $ 100,000 $ 100,000 1/1/2019 To Balance b/f $ 92,000 31/12/2019 By Account Payable $ 8,000 31/12/2019 By Balance C/f $ 84,000 $ 92,000 $ 92,000 Working Explanation At the time of lease of machinery Present value of all leased payments will be the recorded cost of machinery Machinery A/c Dr (10000*10) 100000 To Capital Lease Liability A/c 100000 At the time of payment of annualy lease Capital Lease Liability A/c Dr 100000 8000 Interest Expenses A/c Dr (10000*20%) 2000 To Account Payable A/c 10000 Depreciation for the Machinery by Double Declining Balnce Method Depraciation rate as per Straight Line Method = 1 10 years = 10% Depreciation rate as per Double Declining Balnce Method = 10%*2 = 20% Depreciation A/c Dr (100000*20%) 20000 To Accumulated Depreciation 20000 Accumulated Depreciation A/c Dr 20000 To Machinery A/c 20000