On January 1, 2020 Company A leases a machine from B Corp through a contract that requires 5 payments of $10,000 every January 1, beginning on that day. The present value of the payments discounted at 10% is 42,000. The useful life of the asset is 10 years and the market value is $45,000. How should you classify the A Corp lease? A) Type of sale B) None of the above C) Operational D) Financial
Q: ABC Company acquires a 10% ownership in XYZ Company on January 1, 2015. ABC Company does not have…
A: Investment in equity of a company can be recorded using different methods like cost method and…
Q: 9 Dec. Borrowed $28,000 from the bank for personal use. The loan carried an interest rate of 6% a…
A: Lets understand the basics. When any borrowing is made by the person then interest and repayment is…
Q: 06) Which of the following is a characteristic of the cost method of accounting for subsidiary…
A: Lets understand the basics. Cost method of accounting for subsidiary operation needs to follow when…
Q: On July 1 of year 1, Riverside Corporation (RC), a calendar-year taxpayer, acquired the assets of…
A: Book–Tax Difference: Accounting profit, also known as commercial profit, and fiscal profit,…
Q: Mark Bennett, D.D.S., opened an incorporated dental practice called Mark Bennett Professional…
A: The process of recording business transactions in the books of accounts for the first time is…
Q: Accounting firms may not audit the corporation for which they provide regular accounting services.…
A: An auditor's study or inspection of various books of accounts is followed by a physical inventory…
Q: Concord Corporation's activity for the first three months of 2022 are as follows January February…
A: Introduction: A variable cost is a production charge that rises or falls in response to variations…
Q: 1. How much must Ella deposit in a bank that pays 11% compounded quarterly so that she will have…
A: COMPOUND INTEREST Compound interest is the interest calculated on the principal and the interest…
Q: Required information [The following information applies to the questions displayed below.] BatCo…
A:
Q: Suppose the firm represented by the production and cost functions below is a price-taker in a market…
A:
Q: Stockholders' equity of Ernst Company consists of 93,000 shares of $5 par value, 9% cumulative…
A:
Q: QUESTION 1 Which of the following data best represents a sample? The daily returns of SABIC'S stock…
A: “Hi There, Thanks for posting the questions. As per our Q&A guidelines, must be answered only…
Q: ent Attempt in Progress ura Leasing Company signs an agreement on January 1, 2020, to lease…
A: Lease - Contracts or documents that transfer property from one party to another for a predetermined…
Q: During the month of August, Karlsson Industries had the following transactions: Aug. 2 Aug. 6 Aug.…
A: Introduction: In double entry accounting system, every transaction effects two accounts…
Q: Nogueiras Corp's budgeted monthly sales are P5,000, and they are constant from month to month. 40%…
A: Cash Budget: It is an estimation of cash receipts and payments over a forecast period. It could be…
Q: Adam and Alyssa are equal partners in the PartiPilo Partnership. The partners formed the partnership…
A: A partnership is a form of business where two or more people agrees to operate and manage a business…
Q: Beginning inventory, purchases, and sales data for DVD players are as follows: Date Line Item…
A: First in, first out (FIFO) is an asset management and valuation approach in which the assets that…
Q: . ● Cost of Goods Sold Selling Expenses . Administrative Expenses Dividend Revenue Interest Expense…
A: Statement of comprehensive income is a statement which shows net income and all unrealised gains…
Q: Which of the following audit techniques would most likely provide an auditor with the least…
A: Effective Internal control will satisfy company objectives. Internal controls will identify and…
Q: 1. How much must Ella deposit in a bank that pays 11% compounded quarterly so that she will have…
A: Ans. PHP 268,715
Q: At the end of June, Gardner Dental had performed $7,000 of dental services but has not yet billed…
A: Adjusting journal entry: At year-end when the company finalizes its accounts then any unrecognized…
Q: At the end of 2020, Payne Industries had a deferred tax asset account with a balance of $120 million…
A: A journal entry is utilized to record a business deal in a company's accounting records. A journal…
Q: The following were selected from among the transactions completed by Babcock Company during November…
A: Preparing journal is the most important step in the accounting aspect. Every journal has double…
Q: Hunter's November bank statement shows the following: Balance Add: Deposits Debit cheques: Other…
A: A bank reconciliation statement is a summary of banking and business activities that checks that the…
Q: Pratice Problem 3 A company's individual job sheets show these costs for Jobs 298, 299, and 300.…
A: recording of journal entry in above situation are as follows
Q: Your new job offers a savings plan that pays 1.00 percent in interest each month. You can't…
A: 1. Rate per month(r) =1%Number of Periods for 20 years(n) =22 x 12 = 264Savings per month (PMT) =…
Q: Question: Prepare the Journal Entries, General Ledger, Adjusted Trial Balance
A: Journal Entry In order to document a business transaction in the accounting records of the company,…
Q: if you can earn 2.5% per year on your investment how long will it take to double your money
A: According to the given question, we are required to compute how long the time period will take to…
Q: What is the total of Lumia's assets after the solar panel purchase?
A: The entire accounting is based on the Accounting equation. The accounting equation is an equation…
Q: Calculate the unit variable costs within the relevant range. (Round answer to 2 decimal places e.g.…
A: Variable costs are costs that varies with the output unit. Fixed costs are costs that remains…
Q: What kinds of deductions are prohibited as a matter of public policy? Why might Congress deem it…
A: One definition of the public policy describes it as "a system of laws, regulatory measures, courses…
Q: If our gross profit is $97,218,350 and our adjusted revenue is $123,518,520 what is our profit…
A: GROSS PROFIT MARGIN Gross Profit is the difference between Total Revenue and Cost of Goods…
Q: Record the following transactions with a reference number that serves as a unique identifier for the…
A: Journal Entries - Journal entries are the primary records of the transactions entered into by the…
Q: Morning Dove Company manufactures one model of birdbath, which is very popular. Morning Dove sells…
A: The contribution margin is calculated as difference between sales and variable costs. The…
Q: Just A Company (JAC) 225 units at $100 per unit Variable cost $20 per unit Contribution margin =…
A: Cost volume profit analysis is the technique used by management for decision-making. The methods…
Q: What is an intangible asset? Should all intangible assets be subject to amortization? Explain why or…
A: An intangible asset is one that lacks a physical form. Intangible assets include goodwill, brand…
Q: TB Problem 3-215 (Algo) Daube Industries' operations for... Daube Industries' operations for the…
A: Cash Basis of Accounting :— Under this method of accounting, Expenses is recognised when cash is…
Q: Beta Company started the year with a balance of zero in supplies. It bought supplies of $1,840…
A: Net income is the amount earned by an entity during a period. It is shown in the income statement.…
Q: ABC is a company that does land surveys and engineering consulting. They have an opportunity to…
A: Contribution Margin Per Unit :— It is the difference between sales per unit and variable cost per…
Q: In 2020, Phillip, who is single, has a comfortable salary from his job as well as income from his…
A: According to the given question, we are required to compute the additional amount payable by…
Q: On May 3, Zirbal Corporation purchased 8,500 shares of its own stock for $93,500 cash. On November…
A: Treasury stock is reacquired share by the company. The required share can be the issued in future.…
Q: Plymouth Realty Group has Cash of $100, Accounts Receivable of $900, and Office Supplies of $700.…
A: 1. Computation of sales revenue reported by Old Oak Gross revenue from sale…
Q: On January 1, 2007, Jondy Ltd acquires 5% of the voting shares of Montag Inc. for 785,000. The…
A: As per the given information: 5% Voting shares of Montag Inc acquired by Jondy Ltd - 785,000 Net…
Q: The specific seven-digit Codification citation (XXX-XX-XX) that requires a company to identify and…
A: FASB stands for Financial Accounting Standards Board refers to the board which comprises of…
Q: Wildhorse Company has the following information available for September 2022. Unit selling price of…
A: Cost volume profit analysis is a planning procedure used by management to forecast how changes in an…
Q: Constantine Corporation reported Net Income for the year ended December 31, 20x1, of $23.260 then…
A: A correcting entry is a kind of journal entry that is created to rectify an incorrect transaction…
Q: What figure for non-controlling appear in the consolidated statement of financial position as at 30…
A: Identifiable net assets of subsidiary * minority ownership
Q: Doaktown Products manufactures fishing equipment for recreational uses. The Miramichi plant produces…
A: The activity-based costing is the way of allocating overheads to the cost of the product. Under…
Q: During the month of November, Sophie Company provided consulting services, on account, totaling…
A: Journal entries are recorded to prepare a report of business transactions. These are recorded…
Q: Vito Yarwood practices medicine under the business title Vito Yarwood, M.D. During July, the medical…
A: JOURNAL ENTRY Journal entry is the Process of Recording Financial & Non Financial…
On January 1, 2020 Company A leases a machine from B Corp through a contract that requires 5 payments of $10,000 every January 1, beginning on that day. The present value of the payments discounted at 10% is 42,000. The useful life of the asset is 10 years and the market value is $45,000. How should you classify the A Corp lease?
A) Type of sale
B) None of the above
C) Operational
D) Financial
Step by step
Solved in 2 steps
- 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.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?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 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.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 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.
- 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.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 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
- 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. 47,910Use 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.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).