Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an eight-year period expiring on December 31, 2028. The first of eight equal annual payments of P900,000 was made on January 1, 2021 and subsequent payments will be made every January 1 thereafter. Happy Corporation had purchased the equipment on December 29, 2020 for P4,800,000. Happy paid P150,000 in connection with negotiating and arranging the lease. The lease is appropriately accounted for as a dealer's lease by Happy. The present value on January 1, 2021 of all rent payments over the lease term discounted at a 10% interest rate was P5,280,000. What is Happy Corporation's net investment in the lease on December 31, 2021? * O P4,818,000 O P4,380,000 O P4,309,000 O P3,918,000
Q: On January 1, 2020, Pia Co. engages in a lease contract to rent a property from Iris, Inc for an…
A: Present value of lease (right of use asset) = (Annual payment payable x PV of advance annuity for 5…
Q: On January 1, 2018, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year…
A: Lease is an agreement or association between two parties in which one party provides its asset for…
Q: useful life of the asset) expiring June 30, 2031. The first of 10 equal annual payments of $748000…
A: $750000 and $194080 ` Compute the profit on sale of leased asset : Particulars Amount…
Q: Fox Company, a dealer in machinery and equipment, leased equipment to Tiger Inc. on July 1, 2019.…
A: Lease accounting refers to the accounting for lease agreement both in the books of lessor and lessee…
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: 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 January 1,2020, ABC Company leased its equipment to DEF Company under a 3 year operating lease at…
A: Base Rent on operating lease is recognized on a straight line basis over the period of lease.…
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: Sheridan Co. manufactures equipment that is sold or leased. On December 31, 2021, Sheridan leased…
A:
Q: On January 1, 2020, Nge Company leased a building to Lol Corp. for a ten-year term at an annual…
A: Current liabilities: Liabilities that have to be paid within one year or one operating cycle,…
Q: Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Option (C) is the correct answer.
Q: On April 1, 2021, Xai Company acquired a machine by signing a four-year lease. Annual rentals of…
A: Depreciation is calculated based on the useful life In case of lease, the useful life of the leased…
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: On March 1, 2021, Happy Company leased equipment to Great Company for a four-year period ending…
A: Calculation of gross investment: Gross rentals + absolute amount of residual value Gross…
Q: Federated Fabrications leased a tooling machine on January 1, 2021, for a three-year period ending…
A: The lease of an asset is a contractual agreement between the lessor and lessee former is the owner…
Q: CANDY Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring…
A: Profit on the sale be reported for 2021 = list selling price of the equipment - carrying amount
Q: Maya Company leased equipment from Waya Company on July 1, 2020 for an eight -year period expiring…
A: Present value of lease payments: Present value of all lease payments = P3,520,000 (which is equal…
Q: Shiba Company leased an office to Cate Company for a five- year term beginning January 1, 2020.…
A: Rent for first year = 800,000 Lease term = 5 years Rent for remaining year = 1,250,000 Lease…
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: Cullumber Incorporated leases a piece of machinery to Bramble Company on January 1, 2020, under the…
A: As per the given information, the lease of the equipment is as follows: This is a capital lease for…
Q: A Corp. leased equipment to a lessee on January 1, 2021. The lease is for an eight-year period…
A: A Corp. leased equipment to a lessee on January 1, 2021. The lease is for an eight-year period…
Q: CUPID Corporation leased equipment to a lessee on April 1, 2021 for an eight-year period expiring…
A: Profit on the sale be reported for 2021 = list selling price of the equipment - carrying amount
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, ABC Company leased its equipment to DEF Company under a 3 year operating lease at…
A: Lease rent include all fixed rent ,bouns and additional rent. Following is the ABC Company's rent…
Q: .Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Ans. The expenses related to negotiating and arranging the lease will be treated as an indirect cost…
Q: Fox Company, a dealer in machinery and equipment, leased equipment to Tiger Inc. on July 1, 2019.…
A: Lease is an agreement or contract between two parties in which one party provides its asset for use…
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: Lewis Corporation entered into a lease agreement on January 1, 2020, to provide Dawkins Company with…
A: Requirement a: Describe the nature of a lease and evaluate the criteria to describe a nature of a…
Q: Required 1 Required 2 Required 3 Prepare an amortization schedule that describes the pattern of…
A: Amortization: Paying off debt with installments, where the installments can be either a series of…
Q: Michael Company leased equipment to Hay 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: Zinc Co. leased equipment from Helium Company on July 1, 2018 for an 8- year period expiring June…
A: Lease refers to a contract under which the owner of a property allows another party to use the…
Q: On January 1, 2021, Elle Company acquired a machine by signing a four-year lease. Annual rentals of…
A: Loss on unexercised bargain purchase = Carrying amount of the machinery (leased asset) - Bargain…
Q: On January 1, 2021, Maroon Company entered into a five-year nonrenewable operating lease, commencing…
A: The operating lease is a lease agreement where the lessee takes the assets on rent from the lessor…
Q: Happy Corporation leased equipment to Great Company on January 1, 2021. The lease is for an…
A: Net investment in the lease on December 31, 2021 = The present value of lease payments for the…
Q: On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year…
A: A lease is a written agreement that indicating the conditions within which a lessor acknowledges to…
Q: On January 1, 2020, Charmaine Company entered into an eight-year lease for an equipment. Charmaine…
A: Carrying value represents the value of the asset which is based on the balance sheet of the company.…
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 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: At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: Please find the answer to the above question below:
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: Michael Company leased equipment to Hay Corporation on July 1, 2012 for an eight-year period…
A: Gross profit from this sale at the inception of the lease = cash selling price of the equipment -…
Q: Coronado Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7…
A: The lease liability includes the present value of cash payments in relation to the lease. In case,…
Q: At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A:
Q: On July 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: Future inflows include guaranteed residual cash flows
Q: July 1, 2019, of the rent payments over the lease term, discounted at 12% (the appropriate interest…
A: Lease is an agreement or contract between two parties in which one party provides its asset for use…
Q: On March 1, 2021, Happy Company leased equipment to Great Company for a four-year period ending…
A: Gross investment in the lease = Lease payments + Unguaranteed residual
36
Step by step
Solved in 2 steps
- 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.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 method
- 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.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.On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
- 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.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.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.
- 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 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.Lease Income and Expense Reuben Company retires a machine from active use on January 2, 2019, for the express purpose of leasing it. The machine had a carrying value of 900,000 after 12 years of use and is expected to have 10 more years of economic life. The machine is depreciated on a straight-line basis. On March 2, 2019, Reuben leases the machine to Owens Company for 180,000 a year for a 5-year period ending February 28, 2024. Under the provisions of the lease, Reuben incurs total maintenance and other related costs of 20,000 for the year ended December 31, 2019. Owens pays 180,000 to Reuben on March 2, 2019. The lease was properly classified as an operating lease. Required: 1. Compute the income before income taxes derived by Reuben from this lease for the calendar year ended December 31, 2019. 2. Compute the amount of rent expense incurred by Owens from this lease for the calendar year ended December 31, 2019.