NOTE: the Following Problem Requires Present Value Information

question 12

Essay

NOTE: The following problem requires present value information.
On January 1,2012,Porter Corporation signed a five-year non-cancelable lease for certain machinery.The terms of the lease called for:
A)Porter to make annual payments of $60,000 at the end of each year (starting on Dec.31,2012)for five years.Porter must return the equipment to the lessor end of this period.
B)The machinery has an estimated useful life of 6 years and no expected salvage value.
C)Porter uses the straight-line method of depreciation for all of its fixed assets.
D)Porter's incremental borrowing rate is 8%.
E)The fair value of the asset at January 1,2012 is $275,000.
Required:
1.Discuss whether Porter should account for the lease as an operating or capital lease and why.
2.Using the above information determine how the lease would affect Porter's financial statements in 2013.Use the balance sheet equation below to show the effects.
C + N$A = L + CC + AOCI + RE

• A)Porter to make annual payments of $60,000 at the end of each year (starting on Dec.31,2012)for five years.Porter must return the equipment to the lessor end of this period.
• B)The machinery has an estimated useful life of 6 years and no expected salvage value.
• C)Porter uses the straight-line method of depreciation for all of its fixed assets.
• D)Porter's incremental borrowing rate is 8%.
• E)The fair value of the asset at January 1,2012 is $275,000.
• Required:
• 1.Discuss whether Porter should account for the lease as an operating or capital lease and why.
• 2.Using the above information determine how the lease would affect Porter's financial statements in 2013.Use the balance sheet equation below to show the effects.
• C + N$A = L + CC + AOCI + RE

---

Definitions:

Prize

An award or honor given for an achievement or a winning entry in a competition.

Person-centered Therapy

A type of psychotherapy that emphasizes the client's self-discovery and actualization, with a focus on creating a supportive, non-judgmental environment.

Hostility

An emotion characterized by anger, antagonism, or resentment, which can be directed towards individuals, groups, or objects.

Parental Regard

The attention, esteem, or consideration parents show towards their children, often impacting the child's development and self-esteem.