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I am trying to add an asset to my balance sheet, and it is a…

I am trying to...

I am trying to add an asset to my balance sheet, and it is a capital lease I am trying to figure out how to show it

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

I acquired a piece of equipment and need to figure out how to show it in my balance sheet ie: liabilities and asset sections

Accountant's Assistant: Is there anything else the Accountant should be aware of?

Well, it is hard to understand when reading or understanding which type of lease we have, based upon the questions that are basic it shows that it is considered a Capital lease

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Answered in 16 minutes by:
1/15/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 13,543
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. My name’s Lane …

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

Bear with me a moment while I type up my response. Then if you have further questions we can go from there

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Customer reply replied 1 month ago
Ok

A capital lease is an example accounting's inclusion of economic events, which requires a company to calculate the present value of capital lease payments on its financial statements.

...

As an example, if a company estimated the present value of its what's owed under a capital lease to be $100,000, you'll record $100,000 debit entry to the corresponding fixed asset account and a $100,000 credit entry to the capital lease liability account on your balance sheet.

...

Also because a capital lease is a financing arrangement, you'll have to break down your periodic lease payments into interest expense based on the lease's interest rate and depreciation expense.

...

Lets say you make $1,000 in monthly lease payments and the estimated interest is $200, you'll have a $1,000 credit entry to the cash account, a $200 debit entry to the interest expense account and a $800 debit entry to the capital lease liability account.

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By the way you also have to also depreciate factoring in its salvage value and useful life.

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Example: Lets say the asset above has a 10-year useful life and no salvage value:

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Based on the straight-line method, the company records an $833 monthly debit entry to the depreciation expense account and a credit entry to the accumulated depreciation account. When the leased asset is disposed of, the fixed asset is credited and the accumulated depreciation account is debited for the remaining balances.

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Customer reply replied 1 month ago
Okay, I have called the leasing company and they will not give me the percentage rate? What do i do now?

What?

...

I gave you the answer above

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Ok do you know how to do a Present value calculation?

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Customer reply replied 1 month ago
I was reading on it earlier and trying to figure out by using a PVOA table
Customer reply replied 1 month ago
but not successful, so in short...No!

DO that ...and then the accounting entry is for a debit to the asset for that amount, and a credit for the capital lease liability for that same amount.

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Here's very good Time value of Money calculator: http://www.zenwealth.com/BusinessFinanceOnline/TVM/TVMCalculator.html

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And then when you make the payment (you'll need to amortize the lease so that you know how much of the credit to cash is an interest expense is debit to expense and debit to the liability)

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And then the final piece is to to depreciate (debit to depreciation expense, and credit to accumulated depreciation)

Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 13,543
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane and 87 other Finance Specialists are ready to help you
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PDtax
PDtax, Owner
Category: Finance
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Stephen G.
Stephen G., Sr Financial Expert
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Satisfied Customers: 7,288
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Another expert here; just for clarification on the monthly depreciation; it would be $83.33, not $833.00.

Steve G.

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Lane
Lane
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