50.1K

Verified Solution

Link Copied!

At January $1,2024,$ Caf$$ Med leased restaurant equipment from Crescent Corporation under a nine$-$year lease agreement.

$-$ The lease agreement specifies annual payments of $\backslash (\backslash$$ $25,000\backslash )$ beginning January $1,2024,$ the beginning of the lease, and on each December $31$ thereafter through $2031.$

$-$ The equipment was acquired recently by Crescent at a cost of $\backslash (\backslash$$ $171,000\backslash )($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 $\backslash (\backslash$$ $4,666\backslash ).$

$-$ Crescent seeks a $\backslash (8\backslash \%\backslash )$ return on its lease investments.

By this arrangement, the lease is deemed to be an operating lease.

Note: Use tables, Excel, or a financial calculator. $($FV of $\backslash$$$1,$ PV of $\backslash$$$1,$ FVA of $\backslash$$$1,$ PVA of $\backslash$$$1,$ FVAD of $\backslash$$$1$ and PVAD of $\backslash$$$1)$

Required:

$1.$ What will be the effect of the lease on Caf$$ Med's earnings for the first year $($ignore taxes$)?$

Note: Enter decreases with negative sign.

$2.$ What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Caf$$ Med $($ignore taxes$)?$

Note: For all requirements, round your intermediate calculations and final answers to the nearest whole dollars.

Answer & Explanation Solved by verified expert

See Answer