Using the data below, what would be the appropriate GAAP entries for
(1) the disposal of old copier and
(2) recording of the new copier?
For any data missing, make relevant assumptions.
-Company leases an existing copier (old copier)
-Copier is classified as a capital lease on books
-Copier is 3 yrs into its 5yr life
-Due to certain requirements of the company they will be upgrading to a new copier.
-A deal has been struck that will allow the company to trade-in its existing copier for the new one with some additional outlay
-The new copier is also a lease for a similar 5 year term.
Old Copier Cash Price: $28,000 Lease Price: $30,000 PV of lease payment: $33,835 Implied Interest Rate: 1.45% p.a. Residual Value at end of lease: $2,000 Useful Life: 5yrs Trade in credit on transaction: $16,500 Lease Payment: $519/month ($500 principal, $19 interest) Length of lease: 5yrs Buyout at end of lease: $1 New Copier Cash Price: $48,000 Lease Price: $50,000 PV of lease payment: $50,000 Implied Interest Rate: .85% p.a. Residual Value at end of lease: $15,000 Useful Life: 6yrs Trade in credit on transaction: $0 Lease Payment: $725/month ($695 principal, $30 interest) Length of lease: 5yrs Buyout at end of lease: $9,500