On January 1, 2008, Muske Trucking Company leased a semitractor and trailer for five years. Annual...

Question

On January 1, 2008, Muske Trucking Company leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2008. Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $113,000 and has been determined to be greater than 90% of the fair market value of the asset on January 1, 2008. Muske uses straight-line depreciation on all assets.

Required:
Prepare a table to show the five year amortization of the lease obligation.
Identify and analyze the effect of the lease signing on January 1, 2008.
Identify and analyze the effect of all transactions on December 31, 2009 (the second year of the lease).

Prepare the balance sheet presentation as of December 31, 2009, for the leased asset and the lease obligation.

Robert · Accepted Answer

1. 
 
 Col. 1 Col. 2 
 Lease Interest 
 Payment Expense 
Date  8% 
1/01/08   
12/31/08 28,300 9,040 
12/31/09 28,300 7,499 
12/31/10 28,300 5,835 
12/31/11 28,300 4,038 
12/31/12 28,300 2,088 
 
 
Col. 3 Col. 4 
Reduction of  
Obligation Lease 
Col. 1 – Col. 2 Obligation 
 113,000 
19,260 93,740 
20,801 72,939 
22,465 50,474 
24,262 26,212 
26,212* 0 
 
 
*Amount needed to pay off lease obligation. 
 
 
 

2. 2008 
 
Jan. 1 Leased Truck 113,000 
 
Lease Liability 113,

On January 1, 2008, Muske Trucking Company leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2008. Interest expense is...

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