At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in its lease receivable account.The contract calls for December 31 payments of $15,000.The lessor's annual reporting period ends December 31 and the contract reflects 10% interest.The lessee made the first payment as required.The direct method statement of cash flows for the lessor should reflect which of the following in the first year of the lease contract (ignore noncash disclosures)?
A)$6,000 operating cash flow; $9,000 investing cash flow
B)$15,000 operating cash flow
C)$6,000 operating cash flow; $9,000 addition reconciling adjustment
D)$9,000 investing cash flow
E)None of these answers is correct.

Question

Quizplus · Accepted Answer

The direct method statement of cash flows for the lessor will reflect $6,000 as operating cash flow, which represents the interest portion of the lease payment (10% of $60,000), and $9,000 as investing cash flow, which represents the principal portion of the lease payment ($15,000 payment - $6,000 interest).

At the Beginning of the Year, a Firm Leased Equipment