On January 1, 2021, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires a lease payments equal to 3% of Taco King's sales revenue, with a quarterly sales minimum of $520,000. Payments each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated qu $710,000. Fogelman's interest rate, known by Taco King, was 4%. ( EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD O (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2021 $730.000 Amortization is recc

On January 1, 2021, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires a lease payments equal to 3% of Taco King's sales revenue, with a quarterly sales minimum of $520,000. Payments each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated qu $710,000. Fogelman's interest rate, known by Taco King, was 4%. ( EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD O (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2021 $730.000 Amortization is recc

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...

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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 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
On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
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?
On January 1, 2019, Park Company accepted a 36,000, non-interest-bearing, 3-year note from a major customer in exchange for used equipment. The equipment had originally cost Park 200,000 and had a book value of 20,000 on the date of the sale. At the 12% imputed interest rate for this type of loan, the present value of the note is 25,500 on January 1, 2019. Park uses the effective interest rate. What is the carrying value of the note receivable on Parks December 31, 2019, balance sheet? a. 28,560 b. 29,000 c. 32,500 d. 36,000
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
Short-Term Debt Expected to Be Refinanced On December 31, 2019, Atwood Table Company has 8 million of short-term notes payable owed to City National Bank. On February 1, 2020, Atwood negotiates a revolving credit agreement providing for unrestricted borrowings up to 6 million. Borrowings will bear interest at 1% over the prevailing prime rate, will have stated maturities of 120 days, and will be continuously renewable for 120-day periods for 4 years. Atwood plans to refinance as much as possible of the notes outstanding with the proceeds available from this agreement. Assume that Atwoods December 31, 2019, year-end financial statements are issued on March 30, 2020. Required: Prepare a partial December 31, 2019, balance sheet for Atwood showing how the 8 million short-term debt should be reported. Next Level What is the justification for allowing short-term debt that is expected to be refinanced to be classified as a long-term liability.
On January 1, 2021, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires quarterly variable lease payments equal to 3% of Taco King’s sales revenue, with a quarterly sales minimum of $400,000. Payments at the beginning of each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated quarterly sales of over $650,000. Fogelman’s interest rate, known by Taco King, was 4%.Required:1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2021.2. Prepare the journal entries for Taco King at April 1, 2021. First quarter sales were $660,000. Amortization is recorded quarterly.
On January 1, 2018, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requiresquarterly variable lease payments equal to 3% of Taco King’s sales revenue, with a quarterly sales minimum of$400,000. Payments at the beginning of each quarter are based on previous quarter sales. During the previous5-year period, Taco King has generated quarterly sales of over $650,000. Fogelman’s interest rate, known by TacoKing, was 4%.Required:1. Prepare the journal entries for Taco King at the beginning of the lease at January 1, 2018.2. Prepare the journal entries for Taco King at April 1, 2018. First quarter sales were $660,000. Amortization isrecorded quarterly
On December 31, 2021, Perry Corporation leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding non-lease components, is $46,000. The interest rate for this lease is 12%. The payments are due on December 31 of each year. The first payment was made on December 31, 2021. The normal cash price for this type of equipment is $155,000 while the cost to Perry was $129,000. For the year ended December 31, 2021, by what amount will Perry's earnings increase due to this lease (ignore taxes)? a) 36,000 b) 39,000 c) 26,000 d) 16,000