Happy Company uses lease as a means of selling its equipment. On July 1, 2021, the company leased a piece of equipment to Great Company. The cost of the equipment to Happy Company was P684,000. The fair market value (which was the sales price) was P792,200 at the time of the inception of the lease. Annual lease payments are P135,000 and are payable in advance for 8 years. The equipment has an expected economic life of 10 years. At the end of the lease term, the title to the equipment will pass to Great Company. Implicit interest rate is 10%. What is the manufacturer's profit recognized by Happy Company in 2021? *
Q: On January 1, 2020, Blossom Company leased equipment to Flynn Corporation. The following information…
A: Solution: Lease Accounting correlates to the methodology of a leasing arrangement where the lessor…
Q: Blossom Incorporated leases a piece of machinery to Ayayai Company on January 1, 2020, under the…
A: Journal entry: A journal entry is used to record day-to-day transactions of the business by…
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: Jay Company, as lessee, enters into a lease agreement on January 1, 2020, to lease equipment. The…
A: The lists of capital lease criteria are as follows: The present value of lease covers almost the…
Q: On December 31, 2021, Maroon Co. leased an equipment with a cost of P2,000,000 to Green Co. for…
A: As per IFRS 16, Leases, Lessor will recognize Net investment in lease on lease commencement date…
Q: On December 31, 2021, Maroon Co. leased an equipment with a cost of P2,000,000 to Green Co. for…
A: In the case of lease accounting, the asset under the lease contract is a long-term asset to the…
Q: Sheridan Co. manufactures equipment that is sold or leased. On December 31, 2021, Sheridan leased…
A:
Q: Crosley Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2020. The…
A: a.Compute the amount of the lease receivable.
Q: On January 1, 2021 Richmond Leasing corporation, a public company leased an equipment with a fair…
A: The annual lease rent that should ensure a 9% return rate.
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: 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: 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: Wells Leasing Company signs an agreement on January 1, 2020, to lease equipment to Manchester…
A: Given, Asset value= $250,000 Residual value= $25,000 Lease term = 6 years Interest rate = 6%
Q: On January 2, 2020, Guitar Company leased a warehouse to Violin Corporation under an operating lease…
A: As per IFRS 16, Lease incentive given by lessor is reduced by lessee while computing lease…
Q: Tamarisk Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment…
A: Journal entry: A journal entry is used to record day-to-day transactions of the business by debiting…
Q: On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information…
A: Rental payment refers to the sum of money that is fixed under a contract between the lesser and a…
Q: Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make…
A: SOLUTION- COMPUTATION OF PRESENT VALUE OF LEASE PAYMENTS AS- FORMULA- PRESENT VALUE = ANNUAL…
Q: Sassy Company enters into a five-year lease agreement with Corral Company (lessor) over equipment on…
A:
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: 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: On January 1, 2020, Paulina Co. leased an equipment from Gabriela Inc. for a period of 5 years.…
A: Lease liability = Present value of minimum lease payment + Bargain Purchase price paid =…
Q: On December 31, 2021, Maroon Co. leased an equipment with a cost of P2,000,000 to Green Co. for…
A: Residual value is of two types-one is guaranteed residual value and the other is unguaranteed…
Q: On January 2, 2021, White company leased a machine by signing a 4-year lease contract. Annual…
A: The depreciation on the right of use assets is charged on a straight-line basis over the useful life…
Q: rane Leasing Limited, which has a fiscal year end of October 31 and follows IFRS 16, signs an…
A: Lease is the term which is used in accounting and it is defined as the arrangement that is…
Q: On January 1, 2020, Bacarra Company leased an asset for a term of six years. Annual rentals of…
A: Cost of sales will be calculated as the carrying amount of leased asset less present value of…
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: On January 1, 2022, Durant Corporation agrees to lease equipment to Irving Corporation. The term of…
A: Year Lease Payment Discount Factor Present Value 1 113,913.00 1 113,913.00 2…
Q: Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make…
A: Introduction Operating leases require lease expenses to be recognized on a straight-line basis over…
Q: Debbink Co. leased machinery from Young, Inc. on January 1, 2020. The lease term was for 8 years,…
A: Calculate fair value of asset:
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, 2021, Maroon Co. leased an equipment with a cot of P2,000,000 to Green Co. for 5…
A:
Q: eight years and payments are required at the beginning of each year. The following information…
A: A) the lease is a direct-financing type lease from the lessor's point of view or a capital lease…
Q: On January 1, 2021, Shadow Industries (lessor) leased equipment to Bone Co. (lessee) for a 5-year…
A: The right of use asset is measured at the present value of annual lease payments.
Q: Happy Company uses lease as a means of selling its equipment. On July 1, 2021, the company leased a…
A: Manufacturer's profit recognised by happy company: Sales = Fair value as per problem =…
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: Wildhorse Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected…
A: The entity can determine the present value of the lease by using the implicit rate of interest, if…
Q: On January 1, 2020, Blossom Company leased equipment to Flynn Corporation. The following information…
A: A lease to be a capital lease has to satisfy following conditions: It should be a non- cancelable…
Q: Castle Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to…
A:
Q: On January 1, 2020, Mountain Inc. leases a machine used in its operations. The annual lease payment…
A: Lease accounting is the process of recording the lease activities to show the financial impact of…
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: Wells Leasing Company signs an agreement on January 1, 2020, to lease equipment to Manchester…
A: The question is related to Accounting for Lease. The Present value of lease rent from standpoint…
Q: Prepare an amortization schedule that describes the pattern of interest expense for Federated over…
A: workings:
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: On January 1, 2020, Bensen Company leased equipment to Flynn Corporation. The following information…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
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: On January 1, 2020, Bacarra Company leased an asset for a term of six years. Annual rentals of…
A: Net Investment in the lease Net investment in the lease is equal to sum of the present value of…
Q: n January 1, 2022, Tiktok Company leased a heavy equipment to be used in its construction business.…
A: Requirement : In the question it asked to calculate the cost of right to use assets with the given…
52
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
- 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 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 methodDetermining 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.
- 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 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.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.
- 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.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.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.)
- 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.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.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.