51. On December 30, 2019, Haber Co. leased a new machine from Gregg Corp. The following data relate to the lease transaction at the inception of the lease: Lease term 10 years Annual rental payable at end of each lease year P100,000 Useful life of machine 12 years Implicit interest rate 10 % The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Heber should record a lease liability of a. 0 b. 615,000 c. 630,000 d. 676,000
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- Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
- WITH SOLUTION/COMPUTATION. 51. On December 30, 2019, Haber Co. leased a new machine from Gregg Corp. The following data relate to the lease transaction at the inception of the lease:Lease term 10 yearsAnnual rental payable at end of each lease year P100,000Useful life of machine 12 yearsImplicit interest rate 10 %The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Heber should record a lease liability of a. 0 b. 615,000 c. 630,000 d. 676,000P46 On June 1, 2019, Sorn Company signed a 10-year non-cancelable lease for a machine requiring annual payments at the beginning of each lease year. The machine has a useful life of 15 years without salvage value. Title passes to Sorn Company at the lease expiration date. Sorn Company's accounting year ends on December 31 and it uses straight-line method of depreciation for all of its property, plant and equipment, computed to the nearest full month. Aggregate lease payments have a present value of P2,520,000 on June 1, 2019 based on an appropriate rate of interest. For the year 2019, what amount of depreciation expense should Sorn record for the leased machine? A. P252,000 B. P168,000 C. P147,000 D. P98,000East Company leased a new machine from North Company on May 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at beginning of each lease year $40,000 Useful life of machine 12 years Implicit interest rate 14% Present value factor for an annuity of 1 in advance for 10 periods at 14% 5.95 Present value factor for 1 for 10 periods at 14% 0.27 East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of the machine on the option exercise date. On May 1, 2019, East should record a right-of-use asset of: a.$238,000 b.$251,500 c.$198,000 d.$224,500
- The following facts pertain to a non-cancelable lease agreement between Cullumber Leasing Company and Marin Company, a lessee. Commencement date May 1, 2020 Annual lease payment due at the beginning of each year, beginning with May 1, 2020 $15,138.16 Bargain purchase option price at end of lease term $4,000 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $50,000 Fair value of asset at May 1, 2020 $68,000 Lessor’s implicit rate 8 % Lessee’s incremental borrowing rate 8 % The collectibility of the lease payments by Cullumber is probable.Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.) Discuss the nature of this lease to Marin. The nature of this lease to Marin is a lease. eTextbook and Media List of Accounts Discuss…WITH SOLUTION/COMPUTATION 55. On January 1, 2019, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of P13,000 beginning January 1, 2019. At the end of the lease term, Babson guarantees the residual value of the automobiles will total P10,000. The interest rate implicit in the lease is 9%. Babson’s recorded lease liability on initial recognition isa. 48, 620 b. 44,070 ` c. 35,620 d. 31,070On December 31, 2020, Naruto Company leased a new machine from Sasuke with the following pertinent information: Lease term 6 years Annual rental payable in beginning of each year 500,000 Useful life of machine 8 years Implicit interest rate in lease 12% Present value of an annuity of 1 in advance for 6 periods at 12% 4.60 Present value of an ordinary annuity of 1 for 6 periods at 12% 4.11 The lease is not renewable, and the machine reverts to Sasuke at the termination of the lease. The cost of the machine on Sasuke’s accounting records is P3,755,000. At the beginning of the lease term, Naruto should record a lease liability of
- North Blue Company leased a new copier from Kixko Company on June 1, 2019, under a lease with the following information: Lease term 10 years Annual rental payable at the beginning of each lease year $45,000 Useful Life of machine 10 years Implicit interest rate 12% Present value factor for an annuity of 1 in advance for 10 periods at 12% 6.3282 Present Value factor for 1 for 10 periods at 12% 0.32197 North Blue has the option to purchase a machine on June 1, 2023, by paying $75,000, which approximates the fair value of the machine on the option exercise date. On May 1, 2019, North Blue should record a right-of-use asset in the amount of a.$284,769. b.$292,991. c.$450,000. d.$276,548.Assume that IBM leased equipment that was carried at a cost of $92,000 to Carla Vista Company. The term of the lease is 6 years December 31, 2019, with equal rental payments of $18,427 beginning December 31, 2019. The fair value of the equipment at commencement of the lease is $92,001. The equipment has a useful life of 6 years with no salvage value. The lease has an implicit interest rate of 8%, no bargain purchase option, and no transfer of title. Collectibility of lease payments for IBM is probable. Assume the sales-type lease was recorded at a present value of $92,001.Prepare IBM’s December 31, 2020, entry to record the lease transaction with Carla Vista Company. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Account Titles and Explanation Debit Credit enter an account title enter a debit amount enter a credit amount enter an account title enter a debit amount…The following facts pertain to a non-cancelable lease agreement between Mooney Leasing Company and Rode Company, a lessee. Commencement date May 1, 2020 Annual lease payment due at the beginning of each year, beginning with May 1, 2020 $20,471.94 Bargain purchase option price at end of lease term $4,000 Lease term 5 years Economic life of leased equipment 10 years Lessor’s cost $65,000 Fair value of asset at May 1, 2020 $91,000 Lessor’s implicit rate 8 % Lessee’s incremental borrowing rate 8 % Prepare a lease amortization schedule for Rode for the 5-year lease term