(This Problem Requires Use of Present Value Tables.)

question 99

Essay

(This problem requires use of present value tables.)
Raleigh, Inc. leased some equipment from another company on January 1, 2014, for a three-year period. Payments of $45,000 were due each December 31. The lease qualified as a capital lease. Assets were depreciated over the life of the lease, using the straight-line method. The appropriate interest rate to use was 9%.
Required:
(For all answers, round to the nearest dollar.)
a.Prepare all December 31, 2014, journal entries required on Raleigh's books.
b.At December 31, 2014, how much of the lease liability should be shown as current? Compute two acceptable answers.
c.If the first $45,000 payment were due January 1, 2014, what journal entries would be required on Raleigh's books on January 1, 2014?
d.Assume again that the $45,000 payments are made on December 31. Assume, in addition, that at the end of three years, the lessee guaranteed a residual value of $10,000. Compute the amount of the lease obligation that should be recorded on January 1, 2014.
e.Refer to Part d. Assume that on December 31, 2016, the leased equipment had a fair value of only $6,500. Prepare all December 31, 2016, journal entries for the lessee.

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Definitions:

Litigation

The process of taking legal action in court to enforce or defend a right, resulting in a judge or jury making a decision on the case.

Reputation

The public perception or esteem in which an individual or company is held by others.

In Rem Jurisdiction

A legal term referring to the power a court has to adjudicate over property located within its territorial boundaries, regardless of the owner's location.

Breached Contract

Occurs when one party fails to fulfill any of its contractual obligations, thereby violating the terms of the contract.