ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30, 2030. Equal annual payments under the lease are P80,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest implicit in the lease is 9%. The cash selling price of the equipment is P560,000 and the cost of the equipment on ABC's accounting records was P496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by ABC, what is the amount of profit on the sale and the interest revenue that ABC would record for the year ended December 31, 2020? *
Q: On January 1,2022, ABC Company leased its equipment to DEF Company under a 3 year operating lease at…
A: Lease is the agreement which is a contractual arrangement and states that the user to pay the asset…
Q: On December 31, 2019, Beam Company leased equipment to Forth Company for a four-year period ending…
A: Normal Sale Price = P365,760 Lease period = 4 years First payment = Dec31,2019 Annual payment =…
Q: Skkrrt Company entered into a lease agreement for the use of a new equipment on January 1, 2020. The…
A: Lease liability is an accounting term that refers to the financial obligation to make payments that…
Q: Steak Town Company leased equipment for its nine-year useful life, agreeing to pay P500,000 at the…
A: For the determination of lease liability and interest expense for the year December 31, 2022, We…
Q: On July 1, 2020, Yum Company leased equipment to Burger Company for an 8-year period. Equal payments…
A: Lease is an agreement in which one party (lessor) provide its asset on lease to the other…
Q: llapse question part (a) Prepare the journal entries, that Bridgeport should record on December 31,…
A:
Q: On 1 July 2020, Pininfarina, an Italian automotive design service, acquired equipment under a…
A: On 01.07.2020, Acquired equipment under 4 year finance lease Present value of equipment = $1077450…
Q: Waterway Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period…
Q: On January 1, 2020, Dufferin Corp. enters into a 10-year non-cancellable lease with Pine Ltd. to…
A: Finance lease: A finance lease or capital lease is a type of lease in which a finance company is…
Q: Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Option (C) is the correct answer.
Q: On 1 July 2020, the company had entered into a five-year lease agreement for an asset with RF…
A: Amount charged to Income statement = Interest expense + Amortization Expense
Q: On August 1, 2020, ABC Company leased a machine to XYZ company for six years requiring payments of…
A: Total amount receivable = Annual lease payment x 6 = 100000 x 6 = P600,000
Q: Michelle Company leased equipment to May Corporation on July 1, 2012 for an eight-year period…
A: Discount factor = present value of the equipment / Annual lease payment = P3,520,000 /P600,000 =…
Q: On December 31, 2020, the lessor company leases equipment to the lessee company with 8 equal annual…
A: When an asset is provided by the lessor to the lessee who requires that particular asset, then this…
Q: On January 1, 2019, Cage Company contracts to lease equipment for 5 years, agreeing to make a…
A: The chartered instrumentation is to be promoted at $550,000This implies there's associate choice to…
Q: On January 1, 2021, The Madrid Telephone Co. leased diagnostic equipment from Carlota Corp. The…
A: On 01.01.2021, Madrid Telephone Co. leased diagnostic equipment Annual lease payments = $85000 each…
Q: Kizaru Company leased equipment to Fujitora Company on January 1, 2020 for an eight-year period…
A: Lease liability is recognized at cash selling price and the ROU asset is the sum of lease liability…
Q: On 1 July 2020, the company had entered into a five-year lease agreement for an asset with RF…
A: Amount charged to Income statement = Interest expense + Amortization Expense
Q: Maya Company leased equipment from Waya Company on July 1, 2020 for an eight -year period expiring…
A: Present value of lease payments: Present value of all lease payments = P3,520,000 (which is equal…
Q: On January 1, 2022, Cage Company contracts to lease equipment for 5 years, agreeing to make a…
A: Note: Since you have posted a question with multiple sub-parts, we will solve the first three…
Q: Meg Company leased equipment from Wee Company on July 1, 2021 for an eight-year period expiring June…
A: Under sales type lease, selling profit or loss is = Fair Value of the underlying asset - Carrying…
Q: On August 1, 2020, ABC Company leased a machine to XYZ company for six years requiring payments of…
A: Total amount receivable = Annual lease payment x 6 = 100000 x 6 = P600,000
Q: Cullumber Incorporated leases a piece of machinery to Bramble Company on January 1, 2020, under the…
A: As per the given information, the lease of the equipment is as follows: This is a capital lease for…
Q: On January 1, 2020, Edgar Company entered into a six-year lease with a lessor. Annual lease payments…
A: a)Annual lease payments=P1,200,000 Annual executory payments=P200,000 PV of an ordinary annuity of 1…
Q: On January 1, 2021, Nets Company entered into a lease contract with Denver Company for a new…
A: Lease refers to an agreement made between 2 parties for using the assets that are provided by the…
Q: .Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Ans. The expenses related to negotiating and arranging the lease will be treated as an indirect cost…
Q: Lewis Corporation entered into a lease agreement on January 1, 2020, to provide Dawkins Company with…
A: Requirement a: Describe the nature of a lease and evaluate the criteria to describe a nature of a…
Q: Ivanhoe Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A: The method through which a business tracks the financial effects of its leasing activity is known as…
Q: Sheffield Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A: A journal entry is the first step—and an essential function—of the accounting process. Journal…
Q: On Dec.31, 2021, Splinter Company leased equipment from Land Company with the following date: - The…
A: In accordance with PFRS, upon initial measurement an asset is measured at cost which consists of the…
Q: Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period…
A: Discount factor = present value of the equipment / Annual lease payment = P3,520,000 /P600,000 =…
Q: On January 1, 2021, Elle Company acquired a machine by signing a four-year lease. Annual rentals of…
A: Loss on unexercised bargain purchase = Carrying amount of the machinery (leased asset) - Bargain…
Q: Sheffield Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A: PV Table for 9% Period Discount rate @9% 0 1 1 0.9174 2 0.8417 3 0.7722 4 0.7084 5…
Q: ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30,…
A: Present Value of Lease receivables on July 1, 2020 = (Annual lease payment x Present value factor…
Q: On December 31, 2020, Cleeneth Company leased equipment under a finance lease. Annual lease payments…
A: Calculation of Lease liability for the year 31st Dec , 2020.
Q: On January 1, 2020 Arab Company leases a machine from GMC Corp. with 8 years useful life. The lease…
A: On 01.01.2020, Arab company leases a machine from GMC corp. Useful life of machine = 8 years Lease…
Q: Rayleigh Company had an asset costing P 5,239,000. The asset was leased on January 1, 2020 to…
A: A lease is a contract between the parties that provides the right to use the asset for an agreed…
Q: Sheffield Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A: Accumulated Depreciation: Accumulated depreciation is the combined devaluation of a resource to a…
Q: Cullumber Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020.…
A: A journal entry is a form of accounting entry that is used to report a business transaction in a…
Q: On 10 December 2019, Food Complex Inc. (a private company) entered into a nine-year agreement to…
A: Lease term 9 year Fair value of the asset= $180100 Incremental borrowing rate= 9% Lease payments=…
Q: On December 31, 2020, Roe Company leased a machine from Colt Company for a five-year period Equal…
A: Lease liability :— It is the obligation of making payment under the lease term by lesse to lessor.…
Q: On 1 January 2020, the company entered into a lease agreement for a production equipment which has a…
A: The Initial lease liability is the present value of all lease payments at the lease commencement…
Q: On January 1, 2020, Cage Company contracts to lease equipment for 5 years, agreeing to make a…
A: A journal entry is a form of accounting entry that is used to report a business transaction in a…
Q: Dream Company leased equipment for its nine-year economic life, agreeing to pay P500,000 at the…
A: Answer - As per IFRS 116 lease - lease liability is calculated on commencement date of Lease i.e…
Q: Wildhorse Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020.…
A:
Q: Abhijit Co. leased equipment from Barua Corp. on July 1, 2018, for an 8-year period expiring June…
A: Introduction: A corporation can generate interest revenue in two ways: by lending money or by…
Q: On January 1, 2018, QuickStream Communications leased telephone equipment from Digium, Inc. Digium’s…
A:
Q: January 1,2020, Shirley Corporation leased a machinery from Joel Company on a five-year lease term…
A: 1)leasing is the process by which a firm can obtain the use of fixed assets for which it makes a…
Step by step
Solved in 2 steps
- 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.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?On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
- Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
- Lessor Accounting Issues Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms: 1. Twenty-four lease rentals of 2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramsey was 55,000. 3. Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease. Required: Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019. (Round your answers to the nearest dollar.)On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.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.
- 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.On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.