Exercise 15-2:
January 1, 2011 Prepaid rent (advance payment) 96,000 Cash 96,000

Prepaid rent (annual rent payment) 80,000 Cash 80,000

Leasehold improvements 180,000 Cash 180,000

December 31, 2011 Rent expense (annual rent) 80,000 Prepaid rent 80,000

Rent expense (advance payment allocation) 32,000 Prepaid rent ($96,000 ÷ 3) 32,000 Depreciation expense ($180,000 ÷ 3 years) 60,000 Accumulated depreciation 60,000

Exercise 3 Financial Statement: January 1, 2011 Leased equipment (calculated above) 112,080 Lease payable (calculated above) 112,080

Lease payable 15,000 Cash (lease payment) 15,000

Exercise 3 April 1, 2011 Interest expense (2% x [$112,080 – 15,000]) 1,942
Lease payable (difference) 13,058 Cash (lease payment) 15,000 July 1, 2011 Interest expense (2% x $84,022: from schedule) 1,680
Lease payable (difference) 13,320 Cash (lease payment) 15,000 October 1, 2011 Interest expense (2% x $70,702: from schedule) 1,414
Lease payable (difference) 13,586 Cash (lease payment) 15,000 December 31, 2011 Interest expense (2% x $57,116: from schedule) 1,142 Interest payable 1,142

Depreciation expense ($112,080 ÷ 2 years) 56,040 Accumulated depreciation 56,040 January 1, 2012 Interest payable (from adjusting entry) 1,142
Lease payable (difference) 13,858 Cash (lease payment) 15,000

Exercise 7
Requirement 1 January 1, 2011 Leased assets 4,000,000 Lease payable 4,000,000
Requirement 2

$4,000,000 ÷ 3.16987** = $1,261,881 present lease value payment ** present value of an ordinary annuity of $1: n=4, i=10% Lease Amortization Schedule Lease Effective Decrease Outstanding Payments Interest in Balance Balance 10% x Outstanding Balance
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4,000,000
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2011 1,261,881 .10 (4,000,000) = 400,000 861,881 3,138,119
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2012 1,261,881 .10 (3,138,119) = 313,812 948,069 2,190,050
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2013 1,261,881 .10 (2,190,050) = 219,005 1,042,876 1,147,174
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2014 1,261,881 .10 (1,147,174) = 114,707* 1,147,174 0
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5,047,524 1,047,524 4,000,000
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* adjusted for rounding of other numbers in the schedule

Requirement 3 December 31, 2011 Interest expense (10% x outstanding balance) 400,000
Lease payable (difference) 861,881 Cash (payment determined above)