Finance Lease Exercise (CFA Video)
Finance Lease Exercise (CFA Video)
Question:
A company has entered into a contract to rent a machine for 3 years. It will pay $5000 at the end of each year. The machine has an expected lifetime of 4 years. And the company is using straight-line depreciation method. The relevant interest rate is 5%. How would this impact the accounting of that company?
Answer:
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November 20th, 2009 in
2012 CFA Level 1, CFA - LEVEL 1, CFA Videos, Corporate Finance Posted by Editor
Great explanation again thanks.
One question, how does the accounting equation balance for any one of the year since the ending asset and liability are different?
e.g. 2001
AED = LRC Debit Depreciation +4538.7 Credit Asset -4538.7
Debit Lease Payment +5000 Debit Lease Liability -4319.2 ???
Thanks.
This was very good explanation!
I think: Debit interest 680.8, Credit Cash 680.8 Debit Liability 4319.2, Credit Cash 4319.2 Debit Depreciation 4538.7, Credit Asset 4538.7
Thank you.