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    Howard Co. Capital Lease amortization schedule and JEs

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    Howard Co. as lessee records a capital lease of machinery on January 1, 2010. The seven annual lease payments of $350,000 are made at the end of each year. The present value of the lease payments at 10% is $1,704,000. Howard is responsible to pay executory costs of $2,400 at the end of each year.
    Howard uses the effective-interest method of amortization and calculated the depreciation for 2010 to be $430,000 for the period.
    Use the following amortization schedule for 2010 and 2011 to answer parts (a) and (b) below (round to the nearest dollar)
    Date: 1/01/2010
    Annual Payment:
    10% Interest:
    Reduction of Liability:
    Lease Liability: $1,704,000
    Date: 12/31/2010
    Annual Payment: $350,000
    10% Interest: $170,400
    Reduction of Liability: $179,600
    Lease Liability: $1,524,400
    Date: 12/31/2011
    Annual Payment: $350,000
    10% Interest: $152,440
    Reduction of Liability: $197,560
    Lease Liability: $1,326,840

    (a) Prepare all of Howard's journal entries for 2010 with descriptions and dates for this lease.
    (b) Prepare a partial balance sheet in regard to the lease for Howard's for December 31, 2010. The company uses the change in present value approach to classify the capital lease obligation between current and noncurrent.

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    Solution Summary

    Your tutorial creates a full seven year amortization schedule in excel so that the journal entries can just point to the needed amounts. The entry for interest, executory costs, depreciation expense and at signing are shown.

    $2.19