Med (ignore taxes)? At January 1, 2018, Café Med leased restaurant equipment fro
ID: 2614799 • Letter: M
Question
Med (ignore taxes)? At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term of the lease term of S90.995.) Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease Required: I. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)? 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Cafe E 15-13 Lessee; operating lease: effect on financial statements LO15-4 is only nine years, the asset does have an expected residual value at the end Med (ignore taxes)?Explanation / Answer
As Per Ind As 17 Leases here it is operating lease beause the period of lease is 9 years and the actual economic life of asset is 13 years that means this asset also provide further benefits from the period after lease period
and here it is operating lease so the amount of lease rental is debited to P&L account so the amount of 25000 of lease rent is debited to P&L account Because It is operating lease
(A) The effect on earning for 1st year on Cafe Med is that the earnings is reduced by 25000 due to payment or expense of lease rent The entry is passed that P&L is debited and lease rent is credited by 25000
(B) The Balance after the first year in the balance sheet accounts related to the lease is NIL because it is a operation lease an also there is equal payments of lease for the whole lease period so 25000*9/9 = which comes 25000 there fore there is no lease equalisation reserve so there is nothing in balance sheet