Reference no: EM13610155

Need help with this problem, confused on these two questions On jan 1,2008 two identical companies Brand X Inc. and Brand Y Corp., lease similar assets with the following characteristics: Economic useful life is 8 years lease term is 5 years lease payments of $12,000 per year that are payable at the end of each year. first payment is due Dec, 31, 2008 fair market value is $56,000 each firm has an incremental borrowing rate of 9% and a tax rate of 40% Brand X capitalizes the lease, whereas Brand Y uses the operating lease method for financial reporting purpose. Both firms uses the straight line depreciation method for all long term assets on their financial statements and tax returns. Assume that both firms treat the lease as capital capital lease on their tax returns. Assume also that each firm generates income before lease-related expenses and income tax of $58,000 in 2008

Required:

1. Determine the amount of capital lease (PV of the minimum lease payments) Brand X should record at the inception of lease; also determine the amount of lease related interest and depreciation expenses Brand X should recognize for 2008?

2. Determine the income tax expenses and income tax payable for both Brand X and Brand Y for 2008; also determine the amount of 2008 deferred income tax (asset or liability) for Brand Y