| – At January 1, 2018, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. | |||||||||||
| – The lease agreement specifies annual payments of $25,000 beginning January 1, 2018, the beginning of the lease, and at each December 31 thereafter through 2025. | |||||||||||
| – The equipment was acquired recently by Crescent at a cost of $180,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. | |||||||||||
| – (Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $90,995.) investments. | |||||||||||
| – By this arrangement, the lease is deemed to be an operating lease. | |||||||||||
| – Crescent seeks a 10% return on its lease | |||||||||||
| Required: | |||||||||||
| 1. What will be the effect of the lease on Crescent’s (lessor’s) earnings for the first year? (Enter decreases with negative numbers.) | |||||||||||
| 2. What will be the balances in the balance sheet accounts related to the lease at the end of the first year for Crescent? | |||||||||||
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