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Brooklyn Inc. offers boat tours down the Hudson River. The company has signed a lease for...

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Advance Math

Brooklyn Inc. offers boat tours down the Hudson River. Thecompany has signed a lease for a tour boat with an expectedlifespan of seven years, no estimated salvage value, and a fairmarket value of $225,000. The terms of the lease are asfollows:
·       The lease term begins onJanuary 1, 2018, and runs for 5 years.
·       The lease requires paymentsof $53,000 at the beginning of each year.
·       The lease payment includes$3,000 for maintenance and insurance costs.
·       At the end of the lease term,Brooklyn will be keep/own the tour boat.
·       The lessor’s implied interestrate is 6%, and Brooklyn uses straight-line depreciation forsimilar equipment. Brooklyn Inc. follows ASPE. Brooklyn’s year-endis December 31.
REQUIRED:
a.      Perform all three tests todetermine the nature of this lease, and indicate whether the leaseis to be considered a capital or operating lease.
b.     Prepare a lease amortization schedule.(1 Mark)
c.      Prepare all the journal entries onBrooklyn’s books that relate to the lease for the followingdates:
·       January 1, 2018
December 31, 2018

Answer & Explanation Solved by verified expert
4.2 Ratings (652 Votes)
Lessee AccountingBrooklyn Inc a This is a Finance Lease because 1The present value of the lease payment is more than the fair value of the asset 2Lease term is 5 year which covers major portion of asset life of 7 years 3At the end of lease term Brooklyn will keep the asset b The leasee should use a single accounting model for all type of lease Therefore the leasee shall record the lease liability right in use asset in the given case    See Answer
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