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Plan assets, January 1, 2008
546,200
Pension liability
13,800
On January 1, 2008Doreen Corp., through plan amendment, grants prior service
benefits having a present value of
100,000
Settlement rate
9%
Annual pension service cost
58,000
Contributions (funding)
55,000
Actual return on plan assets
52,280
Benefits paid to retirees
40,000
Prior service cost amortization for 2008
17,000
Instructions: For 2008, prepare a pension worksheet for Doreen Corp. that shows the
journal entry for pension expense and the year-end balance in the related pension
accounts.
E17-2: (Lessee Computations and Entries; Capital Lease with Guaranteed Residual
Value) Delaney Company leases an automobile with fair value of $ 8,725 from John
Simon Motors, Inc., on the following terms.
Noncancelable term of 50, months.
Rental of $ 200 per month (at end of each month; present value at 1% per month is $
7,840).
Estimated residual value after 50 months is $ 1,180. (The present value at 1% per
month is $ 715.) Delaney Company guarantees the residual value of $ 1,180.
Estimated economic life of the automobile is 60 months.
Delaney Company’s incremental borrowing rate is 12% a year (1% a month).
Simon’s implicit rate is unknown.
Instructions:
What is the nature of this lease to Delaney Company?
What is the present value of the minimum lease payments?
Record the lease on Delaney Company’s books at the date of inception.
Record the first month’s depreciation on Delaney Company’s books. (Assume
straight-line.)
Record the first month’s lease payment.
E17-8: (Amortization Schedule and Journal Entries for Lessee) Laura Leasing
Company signs an agreement on January 1, 2008, to lease equipment to Plote
Company. The following information relates to this agreement.
The term of the Noncancelable lease is 5 years with no renewal option. The
equipment has an estimated economic life of 5 years.
The fair value of the asset at January 1, 2008, is $ 80,000.
The asset will revert to the lessor at the end of the lease term, at which time the
asset is expected to have a residual value of $ 7,000, none of which is guaranteed.