The annual report of Sign Corporation for Year 1 reports capital leases requiring payments totaling $228 million over future years, including $58 million payable at the end of Year 2.The interest rate on these obligations is 12 percent and their present value (discounted at 12 percent) at the end of Year 1 was $181 million.The assets financed by capital leases appear on the Year 1 year-end balance sheet at $220 million.Assume no new leases were entered into during Year 2 and that leasehold assets have a remaining useful life of 10 years at the start of Year 2, but no salvage value.Ignore income taxes.
Required:
a. What would be the total expense for Year 2 for the leasehold assets and the financing thereof?
b. What would be the total cash expenditure during Year 2 related to the leasehold assets and the financing thereof?
c. What would be the balance sheet amount for leasehold assets at the end of Year 2?
d. What would be the balance sheet amount for lease obligations at the end of Year 2?

Question

The annual report of Sign Corporation for Year 1 reports capital leases requiring payments totaling $228 million over future years, including $58 million payable at the end of Year 2.The interest rate on these obligations is 12 percent and their present value (discounted at 12 percent) at the end of Year 1 was $181 million.The assets financed by capital leases appear on the Year 1 year-end balance sheet at $220 million.Assume no new leases were entered into during Year 2 and that leasehold assets have a remaining useful life of 10 years at the start of Year 2, but no salvage value.Ignore income taxes.
Required:
 a.	What would be the total expense for Year 2 for the leasehold assets and the financing thereof?
b.	What would be the total cash expenditure during Year 2 related to the leasehold assets and the financing thereof?
c.	What would be the balance sheet amount for leasehold assets at the end of Year 2?
d.	What would be the balance sheet amount for lease obligations at the end of Year 2?

Quizplus · Accepted Answer

The Answer of The annual report of Sign Corporation for Year 1 reports capital leases requiring payments totaling $228 million over future years, including $58 million payable at the end of Year 2.The interest rate on these obligations is 12 percent and their present value (discounted at 12 percent) at the end of Year 1 was $181 million.The assets financed by capital leases appear on the Year 1 year-end balance sheet at $220 million.Assume no new leases were entered into during Year 2 and that leasehold assets have a remaining useful life of 10 years at the start of Year 2, but no salvage value.Ignore income taxes.
Required:
 a.	What would be the total expense for Year 2 for the leasehold assets and the financing thereof?
b.	What would be the total cash expenditure during Year 2 related to the leasehold assets and the financing thereof?
c.	What would be the balance sheet amount for leasehold assets at the end of Year 2?
d.	What would be the balance sheet amount for lease obligations at the end of Year 2?

The Annual Report of Sign Corporation for Year 1 Reports