4.8 Leasing Summary Calculations
The Leasing Problem, as conceived from a ceteris paribus perspective, involved just three steps.
Depreciation
The principal was calculated as $2,076. The assumed life is 15 years.
$2,076 ÷ 15 = $138 (Depreciation Expense)
$2,076 – 138 = $1,938 (New Asset Balance)
Amortization
The interest rate is 5%. The annual lease payment is $200.
($2,076) (0.05) = $104 (Interest)
$200 – $104 = $96 (Amortization)
$2,076 – 96 = $1,980 (New Liability Balance)
Adjustment to Equity
The basic accounting equation is: A – L = E.
Therefore: ∆A – ∆L = ∆E.
Assets decreased by $138, the amount of the depreciation. Liabilities decreased by $96, the amount of amortization.
(138) – (96) = (42)
Eq Beg. = $1,000
Less: (42)
Eq End = $958