cash selling price of the equipment is P3,520,000, and the costrate of interest contemplated by Peg and Howe is 10%. TheThe first payment was made on July 1, 20x5. Thepayments under the lease are P600,000 and are due on July 1for an eight-year period expiring June 30, 2x03. EqualJuly 1, 20x5,6. Peg Co. leased equipment from Howe Corp. onJuly 1payments under the lease are P600,000 and are due onof eachyear.cash selling price of the equipment is P3,520,000, and the cof the equipment on Howe's accounting records is P2,800.0The lease is appropriately recorded as a sales-type lease. Whatis the amount of profit on the sale and interest revenue thatHowe should record for the year ended December 31, 20x5?Profit on salea. 720,000b. 720,000Interest revenue176,000146,000c. 45,000d. 45,000176,000146,000(AICPA)

Lease means giving out the assets by lessor to lessee to use that assets in return of rent.…

July 1, 20x5, payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 20x5. The for an eight-year period expiring June 30, 2x03. Equal 6. Peg Co. leased equipment from Howe Corp. on payments under the lease are P600,000 and are due July 1 of each year. rate of interest conțemplated by Peg and Howe is 10% cash selling price of the equipment is P3,520,000, and the c of the equipment on Howe's accounting records is P2,800.0m0 The lease is appropriately recorded as a sales-type lease. What is the amount of profit on the sale and interest revenue that Howe should record for the year ended December 31, 20x5? Profit on sale a. 720,000 b. 720,000 cost Interest revenue 176,000 146,000 C. 45,000 d. 45,000 176,000 146,000

July 1, 20x5, payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 20x5. The for an eight-year period expiring June 30, 2x03. Equal 6. Peg Co. leased equipment from Howe Corp. on payments under the lease are P600,000 and are due July 1 of each year. rate of interest conțemplated by Peg and Howe is 10% cash selling price of the equipment is P3,520,000, and the c of the equipment on Howe's accounting records is P2,800.0m0 The lease is appropriately recorded as a sales-type lease. What is the amount of profit on the sale and interest revenue that Howe should record for the year ended December 31, 20x5? Profit on sale a. 720,000 b. 720,000 cost Interest revenue 176,000 146,000 C. 45,000 d. 45,000 176,000 146,000

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

See similar textbooks

Similar questions

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?
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.
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
Steele Corp. purchases equipment for $30,000. Regarding the purchase, Steele paid shipping of $1,200, paid installation fees of $2,750, pays annual maintenance cost of $250, and received a 10% discount on sales price. Determine the acquisition cost of the equipment.
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.
On 31 December 20X0, Columbia Inc. entered into an agreement with Scotia Ltd. to lease equipment with a useful life of 6 years. Columbia Inc. will make four equal payments of $141,000 at the beginning of each lease year. Columbia Inc. anticipates that the equipment will have a residual value of $96,000 at the end of the lease, net of removal costs. Columbia Inc. has the option of extending the lease by (1) paying $96,000 to retain the equipment or (2) allowing Scotia Ltd. to remove it. Scotia Ltd.’s implicit interest rate in this lease is 8%. Columbia Inc.’s incremental borrowing rate is 9%. Columbia Inc. depreciates the leased equipment on a straight-line basis. The lease commences on 1 January 20X1. Assume that the fair value of the equipment on the open market is greater than the present value of the lease payments. (PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare a lease liability amortization table for this lease for…
On 1 October 20X3, Fresco acquired an item of plant under a five-year finance lease agreement. The plant had a cash purchase cost of $25 million. The agreement had an implicit finance cost of 10% per annum and required an immediate deposit of $2 million and annual rentals of $6 million paid on 30 September each year for five years. What would be the current liability for the leased plant in Fresco's statement of financial position as at 30 September 20X4? A $19,300,000 B $4,070,000 C $5,000,000 D $3,850,000
On January 1, 20x1, ABC Co, entered into a 4-year lease agreement with XYZ, Inc. for industrial equipment. Lease payment is P100,000 payable annually starting on January 1, 20x1. ABC knows that the lessor expects a 10% return on the lease. ABC has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 5 years and a residual value of P25,000. The lease agreement contained a purchase option at P50,000 exercisable at the end of the lease term. It is reasonably certain as of inception of the lease that ABC will exercise the option in the future. ABC uses the straight line method of depreciation. Requirements: a.) Provide the journal entries. b.) Determine the carrying amounts of the right-of-use asset and lease liability on December 31, 20x1.
On January 1, 20x1, Entity X (Customer) enters into a 4-year lease of equipment with Entity Y (supplier). The annual rent is P220,000 payable at the END of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee’s incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present value factors are as follows: PV of an ordinary annuity of P1 @ 10%, n=4 3.16987 PV of an ordinary annuity of P1 @ 12%, n=4 3.03735 Requirements: 1.How much is the lease liability to be recognized by Entity X on initial recognition? 2.How much is the annual depreciation on the right-of-use asset? 3.Assume the lease is a finance lease. How much is the net investment in the lease to be recognized by Entity Y on initial recognition? 4.Assume the lease is an operating lease. How much is the lease (rent) income in 20x1? 5.Assume the lease qualifies for accounting as…
Phil Co. leased equipment to MNL Corp. on January 1, 2014 for an 8-year period expiring Dec. 31, 2021. Equal payments under the lease are P 600,000 and are due on Dec. 31 of each year. The first payment was made on Dec. 31, 2014. The rate of interest contemplated by Phil Co. and MNL is 11%. The PV of the equipment is P 3,087,674. Phil Co. incurred a total transaction costs of P 44,544 to negotiate the contract of lease. If the transaction cost is included the effective yield is 10.6%. If the lease is accounted as a sales type lease REQUIREMENTS: 1.If the lease is accounted as a sales type lease, what amount of finance income should the lessor report in its 2014 profit or loss? 2.If the lease accounted as a direct financing lease, What amount of finance income should the lessor report in its 2014 profit or loss?
On January 1,2022, ABC Company leased its equipment to DEF Company under a 3 year operating lease at P 250,000 per year. The lease includes a provision for additional rental of 5% of annual company sales in excess of P 2,000,000. DEF Company's sale for the year ended December 31,2022 was P 3,000,000. Upon execution of the lease, DEF Company paid P 100,000 as a bonus for the lease. What is ABC Company's rent revenue for the year ended December 31,2022?