The lease was signed on january 2 of the current year the

Reference no: EM13396619

You are the new assistant controller for SSPT, Inc. SSPT just leased a new copier from Zeros Corporation, and the terms of the lease are as follows:

The lease was signed on January 2 of the current year. The lease can’t be cancelled. The cost and fair value of the copier is $30,325. The lease term is five years, which is also the useful life of the copier, and payments of $8,000 are to be made at the end of each year. There is no renewal option or bargain purchase option. Both SSPT and Zeros use straight-line depreciation. The interest rate used by Zeros to compute the payments is stated in the lease agreement as 10%. Residual value is unguaranteed and estimated at $2,000. The lessee will pay executory costs of $200 per year. The last time SSPT tried to get a loan, the company received a quote for an interest rate of 18%. The company has been shaky financially for the past two years and has missed some payments on loans. There have even been rumors that the company may not be around in a couple of years. The copier will go back to Zeros at the end of the lease. As you finish looking over the copier lease, Mr. Kahn, your boss, stops by your office.

“I see you’re looking at the copier lease. So, how do you think we should account for it?” he asks.
“I just reviewed lease accounting before I took the CPA exam,” you reply. “I’m sure it’s a capital lease.”

“That can’t be right!” your boss exclaims. “The agreement specifically says that Zeros will account for the lease as an operating lease. That means they will still show it as their asset. If we report it as a capital lease, we’ll be showing it as an asset, too! You’d better go back and check. Write me a memo when you are sure about what we should do.”

Based on your analysis of the lease, write a two- to three-page, double-spaced memo to your boss. Be sure to include:

How the lease should be classified for SSPT and why How Zeros will classify the lease and why Any journal entries needed for the first two years for SSPT How the lease will be reported in the financial statements for both SSPT and Zeros Any required disclosure for SSPT.

Using proper APA format, support your answers with appropriate scholarly research and evaluation. Create the required journal entries in an Excel spreadsheet. Use the spreadsheet to present your analysis as well.

Reference no: EM13396619

Questions Cloud

Describe the differences between the mitosis and meiosis in : a discuss an example of how human activities can change the environment. b how would enzyme activity be affected if you

Jason janitorial provided data concerning the costs : jason janitorial provided data concerning the costs incurred to clean hotel rooms for which hotel customers pay 150 per

Which type of correlation procedure would be most : a.an employment agency gathers the following data on its clientsnbspnbspnbsp agenbspnbspnbsp gendernbspnbspnbsp

Dna and rna are similar yet different components of the : dna and rna are similar yet distinct components of the cell. describe three differences between rna and dna with

The lease was signed on january 2 of the current year the : you are the new assistant controller for sspt inc. sspt just leased a new copier from zeros corporation and the terms

Suppose a bird which eats grasshoppers moves into the : a population of grasshoppers in the kansas prairie has two color phenotypes green and brown. typically the prairie

If indeed governments spend more will jobs created be : aggregate demand involves the purchasing actions taken by consumers businesses governments and the spending by u.s. and

I you were in an area having lithops explain four : lithops also called stoneplants are a type of plant that resembles little stones. these plants have the ability to

The mps for product a calls for 100 units to be completed : the mps for product a calls for 100 units to be completed in week 4 and 200 units in week 7. spare part demand for item

User Account

All Pages