Haystack, Inc. manufactures machinery used in themining industry. On January 2, 2018, it leasedequipment with a cost of £480,000 to Silver PointCo. The 5-year lease calls for equal annualpayments at the end of each year. The equipmenthas an expected useful life of 5 years. If the sellingprice of the equipment is £702,000, and the rateimplicit in the lease is 8%.Present value of an ordinary annuity at 8% for5 periods equals 4.00.Present value of an annuity due at 8% for 5periods equals 4.50.Calculate the amount of the annual rental paymentrequired.

Here, Cost of the equipment = £480,000 Selling price of the equipment = £702,000 Interest rate =…

Answered: Haystack, Inc. manufactures machinery…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 9P

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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?
Grummet Company is acquiring a new wood lathe with a cash purchase price of $80,000. The Wood Master Industries (the manufacturer) has agreed to accept $23,500 at the end of each of the next 4 years. Based on this deal, how much interest will Grummet pay over the life of the loan? A. $94,000 B. $80,000 C. $23,500 D. $14,000
On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
On January 1, 2024, Sheridan Ltd. leased a machine from Carla Vista Equipment Ltd. The machine had cost Carla Vista $416,500 to manufacture, and would normally have sold for about $595,000. The lease was for 10 years and requires equal monthly payments of $6,490, which reflects an annual interest rate of 8%. While the machine is expected to have a total useful life of 12 years, Sheridan’s management plans to return it to Carla Vista at the end of the 10-year lease. Sheridan’s management has also determined that the present value of the minimum lease payments was $534,915 at the time the lease was entered into. A.Calculate the impact that the lease will have in the first month on Sheridan’s statement of financial position. (Round answers to 0 decimal places, e.g. 125.) Right-of-use asset at the end of January. $______:1 Lease liability at the end of January $______:1 B. Calculate the impact that the lease will have in the first month on Sheridan’s statement of income.…
Canada M. manufactures special equipment with an estimated economic life of 12 years and leases it to Phranka for a period of 10 years commencing January 1, 2021. The unguaranteed residual value at the end of the lease term is estimated to be $15,000. Phranka will make annual payments of $25,000 at the beginning of each year and pay for all maintenance and insurance costs. Canada M. incurred costs of $105,000 in manufacturing the equipment but is looking to make a profit on the sale of equipment. In addition, Phranka incurred $7000 in costs tied to negotiating and closing the lease. Canada M. has determined that the collectability of the lease payments is reasonably predictable, that no additional costs will be incurred, and that the implicit interest rate is 8%. Phranka has a borrowing rate of 8%. How should Canada M. classify this lease transaction? a. Classify as an operating lease. b. Classify as a capital, sales type lease. c. Classify as a capital, direct finance type lease.…
On 1 January 2022, Enola plc entered a six-year lease contract with Maverick plc for a brand-new electric delivery vehicle. The contract requires a payment of £8,000 every year in advance. The interest rate implicit in the lease is 7% and Enola plc uses actuarial method to allocate interest for finance leases. The economic life of the vehicle is estimated to be 90 months and the residual value of the vehicle at the end of six years will be £1,000. The newly appointed accountant did not take any account related to this leasing (including the payment made at the beginning of the year). Requirement： The Financial Director of Enola plc would like a report on how the six-year lease should be accounted for. Prepare a note containing the full calculation and explanation of your proposed treatment with reference to International Financial Reporting Standards.
On 1 January 2022, Enola plc entered a six-year lease contract with Maverick plc for a brand-new electric delivery vehicle. The contract requires a payment of £8,000 every year in advance. The interest rate implicit in the lease is 7% and Enola plc uses actuarial method to allocate interest for finance leases. The economic life of the vehicle is estimated to be 90 months and the residual value of the vehicle at the end of six years will be £1,000. The newly appointed accountant did not take any account related to this leasing (including the payment made at the beginning of the year). Requirements: The Financial Director of Enola plc would like a report on how the six-year lease should be accounted for. Prepare a note containing the full calculation and explanation of your proposed treatment with reference to International Financial Reporting Standards.
On January 2, AS ACZ signed a 20x1 5-year lease agreement. According to this, AS ACZ must pay 5 equal payments (40,000 euros) at the end of each year. In addition, AS ACZ has guaranteed the residual value of the machine to be 25,000 euros. According to AS ACZ, the market value of the leased equipment is 26,000 euros at the end of the lease period. The economic life of the machine is 6 years. The interest rate is 8%. What are the liabilities at the beginning of the lease term?
On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was A. P63,374 B. P61,446 C. P58,112 D. P56,502 Show properly labeled solution.
On January 1, 20x6, D Corp entered into a 10-year lease with W Inc. for industrial equipment. Annual lease payments of P10,000 are payable at the end of each year. D knows that the lessor expects a 10% return on the lease. D has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years. In addition, a third party, unrelated to D, has guaranteed to pay W a residual value of P5,000 at the end of the lease. In D’s January 1, 20x6 balance sheet, the principal amount of the lease obligation was P63,374 P61,446 P58,112 P56,502 show properly labeled solution.
Welington Company purchased a new machine for P4,800,000 on January 1, 2016 and leased the same to Daniel. The machine has an estimated 12-year life, and will be depreciated P400,000 per year. The lease if for a three-year period expiring January 1, 2019, at an annual rental of P850,000. The implicit rate on the lease is 12%. Additionally, Daniel paid P300,000 to Welington as a lease bonus to obtain the three-year lease. For 2016, Daniel incurred insurance expense of P80,000 for the leased machine. What is Daniel's right of use of asset at December 31, 2016? Use 2 decimal points in computing for the PV

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