10. On 1 July 2008, Copper Coin Ltd leased a photocopier from Silver Note Corp., a company that manufactures, retails and lease copiers. The photocopier has cost Silver Note Corp. $30,000 to make but had a fair value on 1 July 2008 of $35,080. The lease agreement contained the following provisions: Lease term 3 years Annual payment, payable in advance on 1 July each year $ 14,500 Economic life of the copier 4 years Estimated residual value at the end of the lease term when the $3,000 copier is returned to Silver Note Corp. Residual value guaranteed by Copper Coin $ 1,500 Interest rate implicit in the lease 10% The lease is cancellable, provided another lease is immediately entered into. The annual payment included an amount of $2,500 p.a. to reimburse Silver Note Corp. for the cost of paper and toner supplied to Copper Coin Ltd. Silver Note Corp.’s solicitor prepared the lease agreement for a fee of $1,365. On 30 June2011, at the end of the lease term, Copper Coin Ltd retuned the copier to Silver Note Corp., which sold the copier for $3,000. Required: A. Classify the lease for the both the lessor and the lessee, justify your answer. B. Prepare for the lessee; the lease payment schedule.

10. On 1 July 2008, Copper Coin Ltd leased a photocopier from Silver Note Corp., a company that manufactures, retails and lease copiers. The photocopier has cost Silver Note Corp. $30,000 to make but had a fair value on 1 July 2008 of $35,080. The lease agreement contained the following provisions: Lease term 3 years Annual payment, payable in advance on 1 July each year $ 14,500 Economic life of the copier 4 years Estimated residual value at the end of the lease term when the $3,000 copier is returned to Silver Note Corp. Residual value guaranteed by Copper Coin $ 1,500 Interest rate implicit in the lease 10% The lease is cancellable, provided another lease is immediately entered into. The annual payment included an amount of $2,500 p.a. to reimburse Silver Note Corp. for the cost of paper and toner supplied to Copper Coin Ltd. Silver Note Corp.’s solicitor prepared the lease agreement for a fee of $1,365. On 30 June2011, at the end of the lease term, Copper Coin Ltd retuned the copier to Silver Note Corp., which sold the copier for $3,000. Required: A. Classify the lease for the both the lessor and the lessee, justify your answer. B. Prepare for the lessee; the lease payment schedule.

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.5AP

See similar textbooks

Similar questions

Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
January 1, 20X1, Sans Serif Publishers, Inc., a computer services and printing firm, leased a color copier from CompuDec Corporation. The lease agreement specifies four annual payments of $100,000 beginning January 1, 20X1, the inception of the lease, and at each January 1 through 20X4. The useful life of the copier is estimated to be six years and depreciated on a straight-line basis. Before deciding to lease, Sans Serif considered purchasing the copier for its cash price of $479,079. If funds were borrowed to buy the copier, the interest rate would have been 10%. Sans Serif uses US GAAP What amounts of lease asset and lease liability are reported at December 31, 20X1? What amount of expenses are incurred due to this lease for the year ended at December 31, 20X1?
January 1, 20X1, Sans Serif Publishers, Inc., a computer services and printing firm, leased a color copier from CompuDec Corporation. The lease agreement specifies four annual payments of $100,000 beginning January 1, 20X1, the inception of the lease, and at each January 1 through 20X4. The useful life of the copier is estimated to be six years and depreciated on a straight-line basis. Before deciding to lease, Sans Serif considered purchasing the copier for its cash price of $479,079. If funds were borrowed to buy the copier, the interest rate would have been 10%. If Sans Serif uses IFRS How should this lease be classified? What amounts of lease asset and lease liability are reported at December 31, 20X1? What amount of expenses are incurred due to this lease for the year ended at December 31, 20X1?
Louis Company leased a machine from Millennium Corporation on January 1, 2010. The first annual payment was made on January 1, 2011. The machine has an economic life of six years. The lease agreement requires four annual payments of P33,000, including P3,000 annual payment for repairs and maintenance. The machine will be returned to Millennium Corporation at the end of the lease term and Louis Company guarantees a residual value of P5,000. Interest implicit in the lease is 10%, which is known to Louis. If Millennium Corporation recorded the net investment in lease higher than the liability initially recorded by Louis Company, the variance could be due to a. initial direct costs. b. an unguaranteed residual value. c. both A and B d. neither A nor B.
On June 30, 2016, Papa Phil Inc. leased 200 pizza ovens for its chain of restaurants from IC Leasing Corporation. The lease agreement calls for Papa Phil to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment on June 30, 2016. IC calculated lease payment amounts using a 10% interest rate. IC purchased the 200 pizza ovens from Pizza Inc. at their retail price of $3 million. Required: 1. Determine the present value of the lease payments at June 30, 2016 (to the nearest $000) that Papa Phil uses to record the right-of-use asset and lease payable. 2. What amounts related to the lease would Papa Phil report in its balance sheet at December 31, 2016 (ignore taxes)? 3. What pretax amounts related to the lease would Papa Phil report in its income statement for the year ended December 31, 2016 (ignore taxes)? 4. Assume the retail price is $5 million, so we assume the risks and rewards are not transferred to the…
Louis Company leased a machine from Millennium Corporation on January 1, 2010. The first annual payment was made on January 1, 2011. The machine has an economic life of six years. The lease agreement requires four annual payments of P33,000, including P3,000 annual payment for repairs and maintenance. The machine will be returned to Millennium Corporation at the end of the lease term and Louis Company guarantees a residual value of P5,000. Interest implicit in the lease is 10%, which is known to Louis. Assume that on January 1, 2014, the lease payment included an amount of P5,000 for exceeding a limit for machine usage hours specified in the lease agreement. Louis Company would account for this charge as a. an expense in its 2013 statement of comprehensive income. b. an expense in its 2014 statement of comprehensive income. c. a reduction in the lease liability d. additional executory costs
On July 01, 2011, a company leased a piece of land under a 3-year lease. Total rent for the term of the lease will be P3,600,000 payable as follows. All payments were made when due. How much is the lessor's rent revenue for the fiscal year ended June 30, 2012 suppose it classifies the lease as an operating lease? a. P600,000 b. P900,000 c. P1,200,000 d. P2,100,000
On January 1, 2013, Boss Limited signed off on a leasing contract with MR Stationery to lease a specialized, state-of-the-art photocopier. The following information relates to the lease contract. 1. The cost of the photocopier is $525,000 and the fair value of the equipment on January 1 2013 is $700,000. 2. The term of the lease is 7 years with no option to renew and the photocopier has an estimated useful life of 9 years 3. At the end of the lease term, the photocopier must be returned to the Boss Limited. It has a guaranteed residual value of $50,000. MR Stationery uses the straight line method of depreciation (when applicable) 4. The lease agreement requires annual rental payments beginning January 1 2013 5. Boss Limited desires a 5% rate of return which is known to MR. MR Stationery’s incremental borrowing rate is 7%. Requirements: (Assume the financial year ends on December 31) b) Prepare the lease schedule for the lessee
On January 1, 2013, Boss Limited signed off on a leasing contract with MR Stationery to lease a specialized, state-of-the-art photocopier. The following information relates to the lease contract.1. The cost of the photocopier is $525,000 and the fair value of the equipment on January 1 2013 is $700,000.2. The term of the lease is 7 years with no option to renew and the photocopier has an estimated useful life of 9 years3. At the end of the lease term, the photocopier must be returned to the Boss Limited. It has a guaranteed residual value of $50,000. MR Stationery uses thestraight line method of depreciation (when applicable)4. The lease agreement requires annual rental payments beginning January 1 20135. Boss Limited desires a 5% rate of return which is known to MR. MR Stationery’s incremental borrowing rate is 7%.Requirements: (Assume the financial year ends on December 31a. Prepare the lease schedule for the lessee
On June 30, 2016, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2016. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3 million. Required: 1. Determine the present value of the lease payments at June 30, 2016 (to the nearest $000) that Georgia-Atlantic uses to record the leased asset and lease liability. 2. What amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2016 (ignore taxes)? 3. What amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2016 (ignore taxes)?