On January 1, 2019, SMB Co. entered into a 10-year lease for equipment. The acquisition was accounted for as a finance lease for P4,900,000which includes a P200,000 guaranteed residual value. At the end of the lease, the asset will revert back to the lessor. It is estimated that the asset's fair value at the end of its 12-year life will be P100,000. SMB Co.regularly uses the straight-line depreciation on similar equipment. What is the carrying value of the leased asset on December 31, 2019?
Q: On January 1, 2020, Eddie Company entered into a five-year finance lease for an equipment. Eddie…
A: Lease is a form of contract or arrangement between two parties under which one party provides it's…
Q: On December 31,2019, ABC Company signed a 5-year, non-cancelable lease for a machine with DEF…
A: A lease refers to when one party give assets for use to another party for a periodic payment and for…
Q: t January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: Lease payment The purpose of lease is when the company required for the capital assets which are…
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: 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: Next Level Identify the type of lease involved for Alice and Superior Equipment and give reasons for…
A:
Q: On January 1, 2020, Dufferin Corp. enters into a 10-year non-cancellable lease with Pine Ltd. to…
A: Finance lease: A finance lease or capital lease is a type of lease in which a finance company is…
Q: Crane Company leased machinery to Stine Company on July 1, 2021, for a 10-year period expiring June…
A: Lease accounting: Lease accounting is an accounting system used to record the financial impact due…
Q: On July 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: Future inflows include guranted residual cash flows
Q: On January 1, 2021, PokemonGo Company leased equipment to Waldo Corporation under a lease agreement…
A: Solution:- Calculation of the cost of amortization in 2021 as follows under:-
Q: At January 1, 2018, Butterfly, Inc. leased mining equipment from Diamond Corporation under a…
A: Solution 1 Right to use assets Annual lease payment 62000 *cumulative PV factor for…
Q: What portion of the P2,000,000 should be reported as current liability on December 31, 2019?
A: The determination of amount that should be reported as current liability on December 31, 2019 is…
Q: On January 1,2019, Glen Company leased a building to Mix Company for 10-year term at an annual…
A: Current liabilities are those liabilities that need to be paid or settled within a short period of…
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 1, 2019, ABC Co. entered into a 5-year lease for a construction equipment. ABC Co.…
A:
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: Wildhorse Corporation enters into a 6-year lease of equipment on December 31, 2019, which requires 6…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of…
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: At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: 1. What will be the effect of the lease on Crescent’s earnings for the first year? Since it is a…
Q: On January 1, 2019, TharnCorporation leased a machinery from TypeCompany on a five-year lease term…
A: lease payments includes option for exercise.
Q: On January 1, 2020, Chan Company entered in a five-year lease agreement with rentals of P100,000…
A: Introduction A lease liability is a financial obligation for the payments required by a lease,…
Q: On July 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: Lease liability (total) = Present value of annual lease payment + Present value of Guaranteed…
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: a. Prepare the relevant journal entries in the first year of the lease. b. Prepare the relevant…
A: Leasee Magnitude Ltd Term of Lease 3 years Use full life of Plant 7 years Lease Rental…
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: Coronado Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7…
A: A lease is a contract laying out the terms under which one party consents to rent property claimed…
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: 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: On January 1, 2020, Dulcinea Company enters a ten-year noncancelable lease for equipment having an…
A: A lease is a contract between two parties under which the owner of the asset (lessor) gives…
Q: On January 1 2020, Zincorne Corp. entered into an agreement to lease a specialized machine from…
A: Given data, FV=$10,000 Lease term (N) =5 years IBR(I)=9% Annual payments (PMT)=$33,200 Therefore,…
Q: Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1,…
A: The lessor is a person who is the the legal owner of the asset or property, and he gives the person…
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: On July 1, 2021, Ethan Corporation signed a 5-year non-cancelable lease for a machine with Best…
A: Future inflows include guaranted residual cash flows
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: At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A:
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…
Q: At January 1, 2021, Café Med leased restaurant equipment from Crescent Corporation under a nine-year…
A: 1) Effect of the lease on Café Med’s earnings for the first year $…
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 Jan 1, 2020, Soul Company leased machinery from Sister Company for a 10-year period. The useful…
A: For arriving at the solution we have to prepare an amortization schedule.
On January 1, 2019, SMB Co. entered into a 10-year lease for equipment. The acquisition was accounted for as a finance lease for P4,900,000which includes a P200,000 guaranteed residual value. At the end of the lease, the asset will revert back to the lessor. It is estimated that the asset's fair value at the end of its 12-year life will be P100,000. SMB Co.regularly uses the straight-line
Step by step
Solved in 2 steps with 1 images
- 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.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.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.
- 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.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, 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.
- 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 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.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.
- 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.)On January 1, 2019, Boater Company issues a 20,000 non-interest-bearing, 5-year note for equipment. Neither the fair value of the note nor the equipment is determinable. Boaters incremental borrowing rate is 9%. The asset has a useful life of 7 years. Prepare the journal entry for Boater to record the issuance of the note on January 1.Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).