29 Jun Question 1.) Describe, in bullet form, the capital
Question
1.) Describe, in bullet form, the capital lease criteria per GAAP.
2.) Using the data below, what would be the appropriate GAAP entries for (1) the disposal of old
copier and (2) recording of new copier? For any data missing, make relevant assumptions.
• Company leases an existing copier (Old Copier)
• Copier is classified as a capital lease on its books
• Copier is 3yrs into its 5yr life
• Due to certain requirements of the company they will be upgrading to a new copier
• A deal has been struck that will allow the company to trade-in its existing copier for the
new one with some additional outlay
• The new copier is also a lease for a similar 5yr term.
Old Copier
Cash Price
Lease Price
PV of Lease payments
Implied interest rate
Residual Value at end of
Lease
Useful Life
Trade-in Credit on
Transaction
Lease Payment
Length of Lease
Buyout at end of Lease
New Copier
$28,000
$30,000
$33,835
1.45% p.a.
$2,000
$48,000
$50,000
$42,576
0.85% p.a
$15,000.00
5yrs
$16,500
6yrs
$519/month
$500/principal
$19/interest
5yrs
$1
$725/month
$695/principal
$30/interest
5yrs
$9,500
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