For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Lease term (years) Lessor's rate of return Fair value of leased asset Lessor's cost of leased asset Purchase option: Exercise price Exercisable at end of year: Reasonably certain? Situation 1 Situation 2 Situation 3 1 Annual lease payments 5 12% $ 66,000 $ 53,000 $ 13,000 5 yes Situation 2 5 9% $ 423,000 $ 423,000 $ 53,000 5 no 3 4 7% $ 188,000 $ 148,000 Determine the annual lease payments for each situation: (Round your intermediate and final answers to the nearest whole dollar amount.) $ 25,000 3 yes

For each of the three independent situations below determine the amount of the annual lease payments. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Lease term (years) Lessor's rate of return Fair value of leased asset Lessor's cost of leased asset Purchase option: Exercise price Exercisable at end of year: Reasonably certain? Situation 1 Situation 2 Situation 3 1 Annual lease payments 5 12% $ 66,000 $ 53,000 $ 13,000 5 yes Situation 2 5 9% $ 423,000 $ 423,000 $ 53,000 5 no 3 4 7% $ 188,000 $ 148,000 Determine the annual lease payments for each situation: (Round your intermediate and final answers to the nearest whole dollar amount.) $ 25,000 3 yes

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 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...

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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.
At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the leased property. This lease contains a purchase option that is reasonably expected to be exercised. The lessee should record Lease G as: a. neither an asset nor a liability b. an asset but not a liability c. an expense d. an asset and a liability
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
Use the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.
Use the information in RE20-1. Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease.
Each of the four independent situations below describes a lease requiring annual lease payments of $10,000. For each situation, determine the appropriate lease classification by the lessee and indicate why. Situations 1 2 3 4 Lease terms (years) 4 4 4 4 Asset's useful life (years) 6 5 6 6 Asset's fair value $ 44,000 $ 45,000 $ 41,000 $ 38,500 Purchase option that is reasonably certain to be exercised? No Yes No No Annual lease payments Beginning of Year End of Year Beginning of Year End of Year Lessor's implicit rate (known by lessee) 5% 6% 5% 6% Lesse's incremental borrowing rate 5% 5% 5% 5%
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 11,500 Year 2: $ 16,500 Year 3: $ 21,500 Year 4: $ 26,500 An appropriate discount rate is 7 percentage, yielding a present value of $62,927.a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? a-2. If the lease is an operating lease, what will be the initial value of the lease liability? a-3. If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year 1? a-4. If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)
For which of the following conditions will the lessor classify a lease as a sales-type lease? a.The leased asset may be exchanged for a similar asset during the lease term. b.The present value of the sum of the lease payments is equal to or more than the fair value of the underlying asset. c.The lease term is less than one year. d.The lease term is half of the underlying asset’s economic life.
A active lease involves obligations that are not evenly distributed over the lease period. That the very first year's rent is $14,000, with a total payment of $120,000 throughout the four lease period. Interest expenditure for the first year is $6,000, relating to the current value of the entire lease payments and the implicit interest rate. For the first year, the right-to-use asset should be amortised as follows: Multiple-choice questions $0 $8,000 $20,000 $24,000
The interest expense of the lessee during the year when payment is made in advanced shall be: O Lease liability at inception of the lease multiplied by implicit rate of interest. O Total present value of lease liability after initial payment multiplied by effective rate of interest. O Cost of ROUA plus PV of restoration cost multiplied by implicit rate of interest. O Annul lease payment divided by implicit rate of interest multiplied by effective rate.
The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee. Commencement date January 1, 2020 Annual lease payment due at the beginning of each year, beginning with January 1, 2020 $113,864 Residual value of equipment at end of lease term, guaranteed by the lessee $50,000 Expected residual value of equipment at end of lease term $45,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2020 $600,000 Lessor's implicit rate 8% Lessee's incremental borrowing rate 8% The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. Instructions a. Prepare an amortization schedule that would be suitable for the lessee for the lease term. b. Prepare all of the journal entries for the lessee for 2020 and 2021 to record the lease agreement, the lease…