E21.8 (LO3) (Lessor Entries, Sales-Type Lease) Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $35,004 at the beginning of each year. The first payment is received on January 1, 2022. Crosley had purchased the machine during 2021 for $160,000. Collectibility of lease payments by Crosley is probable. Crosley set the annual rental to ensure a 6% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Crosley at the termination of the lease.
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- P21-15 (Please use the latest IFRS accounting standards to answer the question, and take note that lessee do recognise depreciation) Cleveland Group leased a new crane to Abriendo Construction under a 5-year, non-cancelable contract starting January 1, 2022. Terms of the lease require payments of R$48,555 each January 1, starting January 1, 2022. The crane has an estimated life of 7 years, a fair value of R$240,000, and a cost to Cleveland of R$240,000. The estimated fair value of the crane is expected to be R$45,000 (unguaranteed) at the end of the lease term. No bargain purchase or renewal options are included in the contract, and the crane is not a specialized asset. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is probable. Abriendo's incremental borrowing rate is 8%, and Cleveland's implicit interest rate of 8% is known to Abriendo. Instructions a. Identify the type of lease involved and give reasons for your…P46 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. P98,000On January 1, 2022, Yencay, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Thol Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. The fair value of the building on January 1, 2022 is P4,000,000; however, the book value to Holt is P3,300,000. The building has an estimated economic life of 10 years, with no residual value. Yencay depreciates similar buildings on the straight-line method. At the termination of the lease, the title to the building will be transferred to the lessee. Yencay's incremental borrowing rate is 11% per year. Thol Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yencay, Inc. The yearly rental payment includes P10,000 of executory costs related to taxes on the property. The agreement…
- On January 1, 2022, Yencay, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Thol Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. The fair value of the building on January 1, 2022 is P4,000,000; however, the book value to Holt is P3,300,000. The building has an estimated economic life of 10 years, with no residual value. Yencay depreciates similar buildings on the straight-line method. At the termination of the lease, the title to the building will be transferred to the lessee. Yencay's incremental borrowing rate is 11% per year. Thol Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yencay, Inc. The yearly rental payment includes P10,000 of executory costs related to taxes on the property. The agreement…Crane Leasing Limited, which has a fiscal year end of October 31 and follows IFRS 16, signs an agreement on January 1, 2020, to lease equipment to Irvine Limited. The following information relates to the agreement. 1. The term of the non-cancellable lease is six years, with no renewal option. The equipment has an estimated economic life of eight years. 2. The asset’s cost to Crane, the lessor, is $314,000. The asset’s fair value at January 1, 2020, is $314,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $45,374, which is not guaranteed. 4. Irvine Limited, the lessee, assumes direct responsibility for all executory costs. 5. The agreement requires equal annual rental payments, beginning on January 1, 2020. 6. Collectibility of the lease payments is reasonably predictable. There are no important uncertainties about costs that have not yet been incurred by the lessor.…On 1 July 2019, Cars Limited signed a 7-year non-cancelable lease for equipment that requires equal rental payment of $3,500,000 at the beginning of each year. The equipment has a fair value at the inception of the lease of $15,000,000, an estimated useful life of 10 years and no residual value. The lease does not transfer title or contain a bargain-purchase option. The Cars Limited’s incremental borrowing rate is 15% and PVIFA (n=7, i=15%) is 4.1604. RequiredIndicate and explain the type of lease Cars Limited signed in 2019. Include a separate analysis for the scenarios where Cars Limited is the lessee and lessor.
- On January 1, 2021, Sunland, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2021 is $5700000; however, the book value to Holt is $4650000.(c) The building has an estimated economic life of 10 years, with no residual value. Sunland depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Sunland’s incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Sunland, Inc.(f) The yearly rental…Oriole Leasing Corporation, which uses IFRS 16, signs a lease agreement on January 1, 2020, to lease electronic equipment to Wai Corporation, which also uses IFRS 16. The term of the non-cancellable lease is two years and payments are required at the end of each year. The following information relates to this agreement. 1. Wai Corporation has the option to purchase the equipment for $12,800 upon the termination of the lease and this option is reasonably certain to be exercised. 2. The equipment has a cost and fair value of $180,000 to Oriole Leasing Corporation. The useful economic life is two years, with a residual value of $12,800. 3. Wai Corporation is required to pay $5,400 each year to the lessor for insurance costs. 4. Oriole Leasing Corporation wants to earn a return of 10% on its investment. 5. Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs that have not yet been incurred by the…On January 1, 2021, Sandhill, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $5800000; however, the book value to Holt is $4750000.(c) The building has an estimated economic life of 10 years, with no residual value. Sandhill depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Sandhill’s incremental borrowing rate is 10% per year. Holt Warehouse Co. set the annual rental to insure a 9% rate of return. The implicit rate of the lessor is known by Sandhill, Inc.(f) The yearly rental…
- On January 1, 2021, Pharoah, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2021 is $5600000; however, the book value to Holt is $4550000.(c) The building has an estimated economic life of 10 years, with no residual value. Pharoah depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Pharoah’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Pharoah, Inc.(f) The yearly rental…5. CUPID Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring April 1, 2029. Equal payments under the lease are ₱600,000 and are due on April 1 of each year. The first payment was made on April 1, 2021. The list selling price of the equipment is ₱3,520,000 and the carrying amount is ₱2,800,000. The lease is appropriately accounted for as a sales-type lease. The present value of the lease payments is ₱3,300,000. What is the amount of profit on the sale that should be reported for 2021?On January 1, 2021, Moorecraft Finance Company agreed to lease a piece of machinery to Ward Construction Products, Inc. Moorecraft paid $1,554,516 to acquire the machine from the manufacturer and carries it at this amount in its financial statements. The fair value (current selling price) of the machine is $1,554,516. The relevant lease terms follow. Annual rental payments of $263,516 are due on January 1 of each year. These payments do not include any executory costs. Lease term is 6 years. There is no purchase option. The lessor expects to recover the unguaranteed residual value of $280,000 at the termination of the lease. The economic life of the asset is 7 years. The lessor’s implicit rate is known to Ward Construction. Annual maintenance is $20,000, and annual property tax is $12,500. The lessee pays both on January 1 of the year to the lessor. The property taxes are included in the payment made by the lessee to the lessor. The lessor has no material uncertainties regarding…