On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows.1) The lease arrangement is for 3 years.2) The building's cost and fair value at commencement of the lease $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed tobe zero.3) The lease contains no renewal options. The building reverts to Firm ABC at the termination of the lease.4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ.5) Both the lessor and the lessee are on a calendar-year basis.(a) Prepare the journal entries that Firm XYZ should make in 2020Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability(b) Prepare the journal entries that Firm ABC should make in 2020

On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows. 1) The lease arrangement is for 3 years. 2) T The building's cost and fair value at commencement of the lease is $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed to be zero. 3) The lease contains o renewal options. The building reverts to Firm ABC at the termination of the lease. 4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ. 5) Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Firm XYZ should make in 2020 Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022 Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability (b) Prepare the journal entries that Firm ABC should make in 2020

On January 1, 2020, Firm ABC (lessor) leased a building to Firm XYZ (lessee). The relevant information related to the lease is as follows. 1) The lease arrangement is for 3 years. 2) T The building's cost and fair value at commencement of the lease is $60,000. The building is depreciated on a straight-line basis. Its estimated economic life is 5 years with salvage value of $12,000 at the end of the lease. The residual value after 5 years is assumed to be zero. 3) The lease contains o renewal options. The building reverts to Firm ABC at the termination of the lease. 4) The implicit rate of Firm ABC (the lessor) is 6% and is known by Firm XYZ. 5) Both the lessor and the lessee are on a calendar-year basis. (a) Prepare the journal entries that Firm XYZ should make in 2020 Dates 1/1/2020, 1/1/2020, 1/1/2021, 1/1/2022 Please include Lease Payment, Interest, Reduction of Lease Liability, Lease Liability (b) Prepare the journal entries that Firm ABC should make in 2020

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 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs 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.
On January 1, 2020, Nelson Co. leased a building to Wise Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,500,000 (unguaranteed). 2. The leased building has a cost of $4,000,000 and was purchased for cash on January 1, 2020. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $275,000 per year and are made at the beginning of the year. 5. Wise has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Wise. 6. Both the lessor and the lessee are on a calendar-year basis. Instructions a. Prepare the journal entries that Nelson should make in 2020. b. Prepare the journal entries that Wise should make in 2020. c. If Wise paid $30,000 to a real estate broker on January 1, 2020, as a fee for finding the lessor, what is the…
On January 1, 2020, Windsor Co. leased a building to Wildhorse Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,100,000 (unguaranteed). 2. The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2020. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $250,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse. 6. Both the lessor and the lessee are on a calendar-year basis. Click here to view factor tables.(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)
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On January 1, 2025, Splish Brothers Co. leased a building to Sunland Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,900,000 (unguaranteed). 2. The leased building has a cost of $4,400,000 and was purchased for cash on January 1, 2025. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $295,000 per year and are made at the beginning of the year. 5. Sunland has an incremental borrowing rate of 8%, and the rate implicit in the lease is unknown to Sunland. 6. Both the lessor and the lessee are on a calendar-year basis. QUESTION: Prepare the journal entries that Sunland should make in 2025. (List all debit entries before credit entries. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal…
At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. • The lease agreement specifies annual payments of $20,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 thereafter through 2031. • The equipment was acquired recently by Crescent at a cost of $171,000 (its fair value) and was expected to have a useful life of 12 years with no salvage value at the end of its life. • Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $72,098. • Crescent seeks a 8% return on its lease investments. . By this arrangement, the lease is deemed to be a finance lease. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)? Note: Enter decreases with negative sign. 2. What…
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