determine the amount of loss to be recognized.
Q: Happy Company leased a piece of equipment to Great Company on April 1, 2021. The lease is…
A: Total present value of lease liability = Present value of annual lease payment + Present value of…
Q: Cullumber Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years,…
A: “Since you have posted a question with multiple sub-parts, we will solve first three sub-parts for…
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: t January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: Lease payment The purpose of lease is when the company required for the capital assets which are…
Q: Sheffield Corporation agrees on January 1, 2020, to lease equipment from Packers, Inc. for 3 years.…
A: The question is based on the concept of Operating Lease in Lease Accounting. Operating lease does…
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: lessor company signs a sales-type lease agreement on December 31, 2020 to lease equipment to the…
A: Amount of cost of goods sold the lessor will record on December 31, 2020 = Cost of equipment =…
Q: On December 31,2019, ABC Company leased equipment to DEF Company for a 4 year period ending December…
A: Lease: Lease refers to an agreement where the Lessor permit to use of the asset to Lessee in return…
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: On January 1, 2020, MCU Company sold an equipment with carrying amount of P6,000,000 and a remaining…
A: Sale and lease back is a transaction where an entity first sells it asset to another entity and then…
Q: On January 1, 2019, SMB Co. entered into a 10-year lease for equipment. The acquisition was…
A: Carrying value: The face amount of bond, less unamortized discount, or plus unamortized premium, is…
Q: Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period…
A: Calculate the profit on sales The present value of a rental payment $350,000 Less: Cost of…
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 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: 3. On January 1, 2020, Metro Industrial Company leased equipment to Western Company for a four-year…
A: In the context of the given question, we are required to compute the solutions. Lease: A Lease…
Q: On January 1, 2020, Bacarra Company leased an asset for a term of six years. Annual rentals of…
A: Sales type lease: A sales-type lease is recorded by lessor at its net investment in lease Net…
Q: Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5…
A: Given, Lazy company leased an equipment Useful life of equipment = 6 years On January 1, 2020 Lease…
Q: On January 1, 2020, ABC Company enters into a 4-year lease of office equipment. The rent in 2020 is…
A: As per IFRS 16, practical expedient is used when the measurement of Right of use of the asset on…
Q: On July 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: It is pertinent to note that lease liability includes all the fixed lease payments made on the lease…
Q: On January 1, 2022, Buffet Trading Corp. leased machine by signing a 4-year lease contract. Annual…
A: Companies lease liability is calculated as follows- Annual Rental=P1742174 Useful life of the asset=…
Q: What amount will Sandhill record as its lease liability on December 31, 2019, if its incremental…
A: Lease liability refers to obligation of the company requires to pay periodic lease payment on the…
Q: ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30,…
A: ABC would record 2 revenues in the year ended December 31, 2020, namely Sales Revenue on the date of…
Q: 51. On December 30, 2019, Haber Co. leased a new machine from Gregg Corp. The following data relate…
A:
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: Rich Company uses lease as a means of selling its equipment. On July 1,2019, the company leased an…
A: Date Opening Balance Interest Annual Payment Closing Balance (A) (B) (C) (D) (A*10/100)…
Q: 000 are due December 31 for 10 years. The equipment’s useful life is 10 years, and the interest…
A: Given: Annual lease payments of P400,000 Interest 10% First lease payment P 2,700,000
Q: On January 1, 2019, TharnCorporation leased a machinery from TypeCompany on a five-year lease term…
A: lease payments includes option for exercise.
Q: 16. On January 1, 2020, Roque Company purchased a new machine for P6,000,000 for the purpose of…
A: Monthly rental (4,800,000 x 9/12) =3,600,000 Lease bonus ( 600,000 x 9/36)…
Q: On January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000…
A: Introduction A lease liability is a financial obligation for the payments required by a lease,…
Q: 2021. The lease is appropriately accounted for as a sale by ABC Machineries and a purchase by XYZ.…
A: IFRS 16 "Lease" provides guidance for accounting for leases. When a company leases its equipment…
Q: At what amount will Cielo company present its lease liability as of December 31,2022? * On January…
A: As per IFRS 16 lease, at initial recognition of the lease liability includes Present value of lease…
Q: Von Company leased a piece of equipment to Sam Company on April 1, 2021. The lease is appropriately…
A: Total present value of lease liability = Present value of annual lease payment + Present value of…
Q: On January 1, 2019, Shak, Inc. signed a noncancelable lease for a sneaker shining machine. The…
A: Introduction: A noncancelable lease for a shoe polishing machine was signed by Shak, Inc. The…
Q: On December 31, 2019, Oriole Company leased machinery from Terminator Corporation for an agreed upon…
A: The lease liability is a total of the present value discounted at incremental borrowing rate, in…
Q: On January 1, 2019, an entity leased a machinery for 4 years which is the same as the useful life of…
A: Calculation of present value of lease laibility discounted at 12% for four years:: Annual lease…
Q: On January 1, 2019, Tharn Corporation leased a machinery from Type Company on a five-year lease term…
A: The value of the right to use asset is equal to the fair value of lease liability at the inception…
Q: On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an…
A: GIVEN DATA On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year…
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: Miracle Company leased machinery for 10 years, its useful life, with effect from January 1, 2021. At…
A: Upon lease commencement, the lessee shall recognise the right to use assets and lease liability in…
Q: 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated…
A: Term of lease 7 years Cost of machinery $ 507,000 Guaranteed Residual Value $…
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 January 1, 2022, Edward Corporation (lessor) enters into a ten-year lease of equipment to Kirk…
A: In lease accounting, interest income that is to be recognized by lessor in its financial statement =…
Q: ABC Company uses lease as a means of selling its equipment. On July 1,2019, the company leased an…
A: The correct answer for the above question is given in the following steps.
Q: 8. How much interest income should Edward recognized in its December 31, 2022 statement of…
A: 8. ) The fair value of the leased asset on day of lease i.e. January 1, 2022 (This is the value at…
Q: What is the balance of lease liability on December 31, 2020?
A: Lease liability is an accounting term that refers to the financial obligation to make payments that…
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…
12. Werpa Company leased equipment on January 1, 2019, with the following information:
Fixed annual lease payment at the end of each year - P1,000,000
Lease term - 6 years
Useful life - 8 years
Implicit rate - 10%
Werpa has guaranteed a P200,000 residual value on 2024 to the lessor. Assume that the fair value of the asset at the end of the lease term is P175,500, determine the amount of loss to be recognized.
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.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.
- 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.)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.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.
- 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.Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line methodUse 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).
- 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.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.