Chad Ltd negotiated a lease on the following terms: the term of the lease was 5 years; the estimated useful life of theleased equipment was 10 years; the purchase price was R60 000; and the annual lease payment was R5 000. This leaseshould be classified as_____. Select one: a. a financial lease b. An operating lease c. neither operating nor finance lease d. A finance lease

Chad Ltd negotiated a lease on the following terms: the term of the lease was 5 years; the estimated useful life of theleased equipment was 10 years; the purchase price was R60 000; and the annual lease payment was R5 000. This leaseshould be classified as_____. Select one: a. a financial lease b. An operating lease c. neither operating nor finance lease d. A finance lease

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10GI: Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6...

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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).
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.
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.
Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with Darwin Company, the lessee, to provide heavy equipment beginning January 1, 2017. The lease is appropriately classified as a sales-type lease. The lease terms, provisions, and related events are as follows: The lease is noncancelable, has a term of 8 years, and has no renewal or bargain purchase option. The annual rentals are 65,000, payable at the end of each year. The interest rate implicit in the lease is 15%. Darwin agrees to pay all executory costs directly to a third party. The cost of the equipment is 280,000. The fair value of the equipment to Calder is 308,021.03. Calder incurs no material initial direct costs. Calder expects that it will be able to collect all lease payments. Calder estimates that the fair value at the end of the lease term will be 50,000 and that the economic life the equipment is 9 years. This residual value is guaranteed by Darwin. The following present value factors are relevant: PV of an ordinary annuity n = 8, i = 15% = 4.487322 PV n = 8, i = 15% = 0.326902 PV n = 1, i = 15% = 0.869565 Required: 1. Determine the proper classification of the lease. 2. Prepare a table summarizing the lease receipts and interest income earned by Calder for this lease. 3. Prepare journal entries for Calder for the years 2019, 2020, and 2021. 4. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the present value of next years payment approach to classify the lease receivable as current and noncurrent. 5. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the change in present value approach to classify the lease receivable as 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.
In the third year of a 6-year finance lease, the portion of the lease payment applicable to the reduction of the lease liability should be: a. less than in the second year b. more than in the second year c. the same as in the fourth year d. more than in the fourth year
BenLin Co. is a lessee under finance lease. The asset is recorded at P4,500,000 and has economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of P1,500,000 at the end of 5 years and a fair value of P500,000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of depreciation expense should be recorded for the first year of the lease?
Law Company leased a machine with a fair value of P 1,650,000 for a period of 5 years under a finance lease. The initial direct cost included in negotiating the lease amounted to P 12,500. The present value of the minimum lease payments discounted at the rate implicit in the lease is P 1,584,000. At what amount should the machine be recognized initially by Law Company? Show your solution.
The Arcade Company entered into a 10 year lease under which it made payments of R26 720 annually in advance.Arcade's borrowing rate was 10% per annum. The present value of the land was R125 000 and that of the buildings wasR125 000. The value of the land at the end of 10 years was R167 500 and the value of the buildings was R32 500. What isthe present value of the operating lease?Select one:a.None of the given options is correctb.R125 000c.R64 571d.R48 188
On 30 June 2022, Happy Ltd purchased machinery for its fair value of $41 600 and then leased it to Laugh Ltd. Laugh Ltd incurred $220, and Happy Ltd incurred $797, in costs to negotiate the lease agreement. The machine is expected to have an economic life of 5 years, after which time it will have a residual value of $2500. The lease agreement details are as follows. Length of lease 4 years Commencement date 30 June 2022 Annual lease payment, payable 30 June each year commencing 30 June 2022 $12 000 Residual value at the end of the lease term $10 000 Residual value guarantee by lessee $8 000 Interest rate implicit in the lease 9% All insurance and maintenance costs are paid by Happy Ltd and amount to $2 000 per year and will be reimbursed by Laugh Ltd by being included in the annual lease payment of $12 000. The lease has been classified as a finance lease by Happy Ltd. The machinery will be depreciated on a straight-line basis. It is expected…
Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing Ltd, which then leases it to Upland for $60,000 per annum for three years. The payments are to be made at the commencement of each year including the first year of the lease period. Wilcox Ltd incurs costs of $1,500 to establish the lease. The lease is non-cancellable and classified as a finance lease by the lessor. The interest rate implicit in the lease is 10%. There is no guaranteed or unguaranteed residual value at the end of the lease period. Required: Prepare the journal entries for Wilcox Ltd to record the initial recognition of lease related assets and interest income for three years under AASB 16/IFRS 16
Sunland Corporation is a lessee with a finance lease. The asset is recorded at $1020000 and has an economic life of 8 years. The lease term is 5 years. The asset is expected to have a fair value of $360000 at the end of 5 years, and a fair value of $130000 at the end of 8 years. The lease agreement provides for the transfer of title of the asset to the lessee at the end of the lease term. What amount of amortization expense would the lessee record for the first year of the lease? $132000 $111250 $178000 $204000