## Intermediate III Ch15Q5 | At January 1, 2018, Café Med leased restaurant equipment

what’s going on guys john bradshaw here

we’re doing chapter 15 homework question 5 I’ll just get started on At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $50,995.) Crescent seeks a 10% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. first year number two what will the

balance be in the balance sheet accounts related to the lease at the end of the

first year for cafe Med ignore taxes so real quick just looking at this at the

beginning at the so question one what will the effect of the lease on cafe

meds earnings of for the first year for the first year it looks like they’re

pursuing now 25k on this lease so we can see a decrease of twenty five thousand

dollars on this one now these payable at the beginning of

the year at the end of the year right so first we have to find the value of this

lease so for paying twenty five thousand dollars on an annual basis for nine

years and we’re looking for ten percent because you pay at the beginning we’re

looking for a present value of the annuity due so pay twenty five K January

first the beginning of the lease nine years ten percent we’re gonna look at

the present value of the annuity do table

Scarah locale key our calculator looking for I believe it was right nine percent

nine years I’m sorry ten percent so again we get our Kalki and we’ll look

for ten percent right here and put the edge of my calculator there kind of line

it up nine years ten percents over the number we’re using is six point three

three four nine three dozen right here I’d you my calc corner of my calculator

I’m gonna take that number and multiply it by the payments which is twenty five

thousand dollars so this is the value of the lease so real quick I’m going to go

ahead and hang on so real quick I’m gonna take a snipping

tool I’m going to snip this real quick so we can kind of see it better and I’m

gonna go on and write this down 1:58 three seven three I put it right here so

it’s gonna be the present value is 158 three seven three look at that beautiful

and writing crap sorry guys I’m kind of uh you know OCD I’m not sure anyway 158

three seven three is the present value now then we have we did a payment of

twenty five thousand so we can subtract twenty five thousand I’m just gonna put

25k you can understand that is twenty five thousand what we’re looking for is

lease payable at the end of the year right these payable balance at the end

of the year so I have one hundred fifty eight and we paid twenty-five thousand

so we have 133,000 373 and then we’re looking for a 10% my mom this is how

much is gonna be for the interest right so then we subtract 25,000 and then this

is also how much we’re going to be paying on towards the lease 11:6 62.67 5

/ 11 663 so it’s going to go here subtract the 11.66 3000 right cuz I put

the decimal 11,000 633 so we’re gonna go ahead and and I kind of put these

together 25,000 so the total amount that we’re doing on this lease is thirty six

thousand six hundred sixty-two and then we’re going to add that because it says

negative we’re going to take this away from the principle which is 158 373 and

this is gonna be the lease balance payable balance at the end of the year

121 710 so let’s go ahead and go back to here these paper was 121 710 and just to

verify let’s go over this real quick so we took the we found the present value

of the lease by taking the payments multiplying it by the present value of

annuity do tables 9 years 10 percent and that gave us the present value we

subtracted the payment and then we also subtracted the we found $25,000 minus

the interest which was 10 percent of of them of the difference it’s hard to

explain so we have 158 373 right – $25,000 so this

is how much we have during the year but then on December 31st we also do a

payment of 25 k but only but part of it is interest and the other part is not so

here is what we have right now times 10% right so this is how much is going to be interest and the rest of the 25 K is

actually gonna be if you follow me did you get that so it’s gonna be 25 K times

10% times 10% it’s gonna be the December payment right this is we’re gonna be for

December 31st because you pay it twice so 25 K times 10% and that’s gonna be

the interest which is going to be this amount but you pain 25 K so the

difference between 25,000 and 13,000 is where we got this 11 663 and that’s

going to be the total for the year so and that’s this payment the 10% is going

to the corporation and the rest of this the remainder of the 1166 3000 is going

towards the principal so it’s the $25,000 they paid at the beginning and

the 11 663 that you pay on December 31st yeah right here if you can see this at

the end of December 31st so on the December 31st you’re gonna add this

amount so at the end of the year you’re paying 25 k + 11 663 if that makes sense

if it doesn’t leave a comment I’ll try to be more specific this is kind of

confusing for me so anyway you subtract the present value and these two amounts

and you get this right here 21 7 10 next the right of use this one it’s gonna be

just the present value right let me get my this right here it’s gonna be the

present value of 158 373 and you’re just going to subtract the 11,000 663

so you take your present value minus the interest at the end of the year and

that’s going to be your right of use for the asset and let’s go ahead and put

that right here which is going to be fourteen thousand one hundred forty six

thousand seven ten one forty six seven ten and of course it’s always check to

work ladies and gentlemen let’s see how we did answer is complete and correct hi

damn baby this was a tough one it’s a little confusing I know if you have any

questions guys leave a comment if this helped you out at all leave a like

subscribe to this channel show me some love I’ll try to help you out as best as

I can if you want to clarify for me in the comments maybe something I missed or

something I didn’t explain very well please feel free to do that for me in

the comments I appreciate it we’re all helping each other out here we’re all

trying to get through school so yeah thanks for watching and I’ll see you

guys on question six in the next video