accounting 404736 | Homework Solutions
Case Study ‘ Leases Page 1352 Accounting, Analysis, and Principles Salaur Company is evaluating a lease arrangement being offered by TSP Company for use of a computer system. Please read the terms found on the bottom of page 1352. 1.Accounting Analyze the lease capitalization criteria for the lease. Prepare the journal entry for Salaur on January 1, 2012. 2.Analysis Discuss the impact of the accounting for this lease for two common ratios: Return on assets and debt to total assets. 3.Principles What elements of faithful representation (completeness, verifiability, neutrality, free from error) is being addressed when a company like Salaur evaluates lease capitalization criteria? Additional info: yearly rental 3,527.25 lease term 3 years Estimated economic life 5 years purchase option 3,000 at the end of 3 years which is approximates fair value renewal option 1 year at 1,500; no penalty for nonrenewal standard renewal clause Fair value at inception lease 10,000 cost of asset to lessor 10,000 Residual value gauranteed 0 unguaranteed 3,000 lessor implicit rate 12% Executory costs paid by: lessor estimated to be 5,0000 per year( included rental euip) Estimated fair value at the end of lease 3,0000
