Lansing East leased high-tech electronic equipment from Davis Computing on January 1, 2021. Davis Computing manufactured the equipment at a cost of $42,500. (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.) Related Information: Lease term Quarterly rental payments Economic life of asset Fair value of asset Implicit interest rate 2 years (8 quarterly periods) $7,500 at the beginning of each period 2 years $56,040 8% Required: 1. Show how Davis Computing determined the $7,500 quarterly rental payments. 2. Prepare appropriate journal entries for Davis Computing to record the lease at its beginning, January 1, 2021, and the second lease payment on April 1, 2021.

Lansing East leased high-tech electronic equipment from Davis Computing on January 1, 2021. Davis Computing manufactured the equipment at a cost of $42,500. (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.) Related Information: Lease term Quarterly rental payments Economic life of asset Fair value of asset Implicit interest rate 2 years (8 quarterly periods) $7,500 at the beginning of each period 2 years $56,040 8% Required: 1. Show how Davis Computing determined the $7,500 quarterly rental payments. 2. Prepare appropriate journal entries for Davis Computing to record the lease at its beginning, January 1, 2021, and the second lease payment on April 1, 2021.

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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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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.
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.
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.
Bidwell Leasing purchased a single-engine plane for its fair value of $771,147 and leased it to Red Baron Flying Club on January 1, 2021. (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.)Terms of the lease agreement and related facts were: Eight annual payments of $135,000 beginning January 1, 2021, the beginning of the lease, and at each December 31 through 2027. Red Baron knows that Bidwell Leasing’s implicit interest rate was 11%. The estimated useful life of the plane is eight years. Payments were calculated as follows: Amount to be recovered (fair value) $ 771,147 Lease payments at the beginning of each of the next eight years: ($771,147÷ 5.7122*) $ 135,000 *Present value of an annuity due of $1: n = 8, i = 11%. Red Baron's incremental borrowing rate is 12%. Incremental Costs of negotiating and consummating the completed lease transaction incurred by Bidwell Leasing were $21,091.…
Sushi Co., a lessor of equipment, purchased a new equipment for ₱1,000,000 on December 31, 2020.The equipment was delivered the same day to Mooncake Co., the lessee. The following informationrelates to the lease transaction: The leased asset has an estimated useful life of seven years, which is also the lease term. At the expiration of the lease, the equipment will revert to Sushi, at which time it is expected tohave a residual value of ₱120,000 (none of which is guaranteed). Sushi’s implicit interest rate is 12%. Mooncake’s incremental borrowing rate is 14% at December 31, 2020. Lease rentals consist of seven equal annual payments, the first of which was paid on December31, 2020. Sushi properly accounts for this lease as a direct financing lease and as a finance lease byMooncake. Both lessor and lessee are calendar year corporations and depreciate all property,plant and equipment on the straight-line basis.Questions: (Round off present value factors to 4 decimal places): 4. What…
Sushi Co., a lessor of equipment, purchased a new equipment for ₱1,000,000 on December 31, 2020.The equipment was delivered the same day to Mooncake Co., the lessee. The following informationrelates to the lease transaction: The leased asset has an estimated useful life of seven years, which is also the lease term. At the expiration of the lease, the equipment will revert to Sushi, at which time it is expected tohave a residual value of ₱120,000 (none of which is guaranteed). Sushi’s implicit interest rate is 12%. Mooncake’s incremental borrowing rate is 14% at December 31, 2020. Lease rentals consist of seven equal annual payments, the first of which was paid on December31, 2020. Sushi properly accounts for this lease as a direct financing lease and as a finance lease byMooncake. Both lessor and lessee are calendar year corporations and depreciate all property,plant and equipment on the straight-line basis.Questions: (Round off present value factors to 4 decimal places):1. How…
On December 31, 2021, Take it Easy Co. Leased an equipment with a cost of P1,000,000 to DesperadoCo. for4years which is also the useful life of the asset. The lease agreement specificies equal annual paymentofP261,694 beginning on December 31, 2021. At the end of the lease term, the equipment will revert toTakeitEasy Co. A third party related to the lessee guarantees residual value of the equipment amountingtoP150,000.The rate implicit on the lease is 11%. 1. How much is the total interest income to be earned over the lease term?a. P46,775 c. P196,775b. P103,225 d. P1,172,9272. How much is the interst income in 2022?a. P24,597 c. P81,214b. P61,361 d. P110,000
On December 31, 2020, Lesley Co. signed a 10-year noncancelable lease agreement to lease a storagebuilding from Stark Company. The following information pertains to this lease agreement: The agreement requires equal rental payments of ₱720,000 beginning on December 31, 2020. The fair value of the building on December 31, 2020 is ₱4,400,000. The building has an estimated economic life of 12 years, with an unguaranteed residual value of₱100,000. Lesley depreciates similar buildings on the straight-line method. The lease is nonrenewable. At the termination of the lease, the building reverts to the lessor. The interest implicit in the lease is 12% per year. The yearly rental payment includes ₱20,705 of executory costs related to taxes on the property.QUESTIONS: (Round off present value factors to 5 decimal places)1. What amount should be capitalized as the cost of the leased storage building?2. What amount should be included in the current liabilities section of Lesley’s statement…
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11 What is the annual lease payment payable in advance required to yield the desired return? A. P 500,000 B. P 477,826 C. P 559,610 D. P 460,000
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? P 500,000 P 477,826 P 559,610 P 460,000
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? A.P 500,000 B.P 477,826 C.P 559,610 D.P 460,000