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Question
Fischer Corporation leased new equipment to Swix Company on January 1, 2011. The lease is for an eight-year period and requires equal annual payments of $35,000 due on January 1 of each year. The first payment was made at the inception of the lease. The fair value of the equipment and the present value of the payments was $217,223. The implicit interest rate is 8%. The equipment cost Fischer Corporation $160,000, has an estimated eight-year life, and a residual value of zero. Fischer Corporation uses straight-line depreciation. Fischer Corporation should have recorded the lease as a sales-type lease but mistakenly recorded the lease as an operating lease.
Required: Determine the amount of the lease classification error on the following financial statement elements of Fischer Corporation, and whether the amount is overstated or understated:
Total assets as of 12/31/12 ____________
Net Income for the year ended 12/31/11 ____________
Answer
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