On January 1, 2023, Riverbed Ltd., a private company following ASPE, leased a building to Candle Corp. for a ten-year term at an annual rental of $86500. At the inception of the lease, Riverbed received $346000 covering the first two years rent of $173000 and a security deposit of $173000. This deposit will NOT be returned to Candle upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $346000 should be shown as a current and long-term liability, respectively, in Riverbed's December 31, 2023 statement of financial position? Current Liability. Long-term Liability $0 $346000 $86500 $173000 $173000 $173000 $173000 $86500
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![On January 1, 2023, Riverbed Ltd., a private company following ASPE, leased a building to Candle Corp. for a ten-year term at an
annual rental of $86500. At the inception of the lease, Riverbed received $346000 covering the first two years rent of $173000 and a
security deposit of $173000. This deposit will NOT be returned to Candle upon expiration of the lease but will be applied to payment
of rent for the last two years of the lease. What portion of the $346000 should be shown as a current and long-term liability,
respectively, in Riverbed's December 31, 2023 statement of financial position?
Current Liability.
Long-term Liability
$0
$346000
$86500
$173000
$173000 $173000
$173000 $86500](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fe2c119e5-150f-4eb6-a37b-d5a154c2ffda%2F36a3c9fc-963f-4c53-b3c2-2e0c9c400bd1%2Fveg7e0c_processed.png&w=3840&q=75)
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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.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.On January 1, 2021, Coronado Industries leased a building to Sandhill Co. for a ten-year term at an annual rental of $175000. At inception of the lease, Coronado received $701000 covering the first two years' rent of $350000 and a security deposit of $351000. This deposit will not be returned to Sandhill upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $701000 should be shown as a current and long-term liability, respectively, in Coronado's December 31, 2021 balance sheet? Current Liability Long-term Liability $350000 $175000 $175000 $350000 $0 $701000 $350000 $351000
- On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an annual rental of P60,000. At inception of the lease, Ehr received P240,000 covering the first two years' rent of P120,000 and a security deposit of P120,000. This deposit will not be returned to Dent upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 1. What portion of the P240,000 should be shown as a non-current liability in Ehr's December 31, 2021 balance sheet?On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $3,870, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $24,177.54. The fair value of the equipment is $25,700. • Amity incurs initial direct costs of $1,310.90. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $3,100 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Required: Prepare the journal entries for Amity for 2019.On January 1, 2020, Nge Company leased a building to Lol Corp. for a ten-year term at an annual rental of P140,000.At inception of the lease, Nge received P560,000 covering the first two years' rent of P280,000 and a security deposit ofP280,000. This deposit will not be returned to Lol upon expiration of the lease but will be applied to payment of rent for thelast two years of the lease. What portion of the P560,000 should be shown as a current and long-term liability, respectively,in Nge's December 31, 2020 balance sheet? Current Liability Long-term Liabilitya. P0 P560,000b. P140,000 P280,000c. P280,000 P280,000d. P280,000 P140,000
- On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $4,050, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $25,173.36. The fair value of the equipment is $26,700. • Amity incurs initial direct costs of $1,370.46. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $2,840 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Prepare the journal entries for Amity for 2019.On January 1, 2021, Blossom, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6500000; however, the book value to Holt is $5450000.(c) The building has an estimated economic life of 10 years, with no residual value. Blossom depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Blossom’s incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 11% rate of return. The implicit rate of the lessor is known by Blossom, Inc.(f) The yearly rental…On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 10 years. • The lease does not contain a renewal or bargain purchase option. • The annual rentals are $4,150, payable at the beginning of each year. • Baltimore agrees to pay all executory costs directly to a third party. • The cost of the equipment to the lessor is $25,836.57. The fair value of the equipment is $27,300. • Amity incurs initial direct costs of $1,427.00. • The interest rate implicit in the lease is 12%. • Amity expects to collect all lease payments from Baltimore. • Amity estimates that the fair value at the end of the lease term will be $3,110 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore. Required: 1. Next Level What are initial direct costs? Discuss the accounting treatment of these costs. Are they treated in the same…
- On January 1, 2025, Wildhorse, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Pina Warehouse Company. Collectibility of the lease payments is reasonably predictable and no important uncertainties surround the costs yet to be incurred by the lessor. The following information pertains to this lease agreement: (a) The agreement requires equal rental payments at the beginning of each year. (b) The fair value of the building on January 1, 2025 is $5850000; however, the book value to Pina is $4800000. (c) The building has an estimated economic life of 10 years, with no residual value. Wildhorse depreciates similar buildings using the straight-line method. (d) At the termination of the lease, the title to the building will be transferred to the lessee. (e) Wildhorse's incremental borrowing rate is 12% per year. Pina Warehouse Co. set the annual rental to ensure a 10% rate of return. The implicit rate of the lessor is known by Wildhorse, Inc. (f) In…On January 1, 2021, Sandhill, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $5800000; however, the book value to Holt is $4750000.(c) The building has an estimated economic life of 10 years, with no residual value. Sandhill depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Sandhill’s incremental borrowing rate is 10% per year. Holt Warehouse Co. set the annual rental to insure a 9% rate of return. The implicit rate of the lessor is known by Sandhill, Inc.(f) The yearly rental…On January 1, 2018, Naw Corporation leased a piece of machinery from Hoffherr Machinery's. The lease is a(n) 10 year, non-cancellable lease that requires lease payments of $5,000 due at the beginning of each year. The lease has been determined to be a capital lease because at least one of the classification criteria has been met. Naw Corporation needs to determine the present value of the lease payments so that they can record the asset and the liability at lease inception. Hoffherr Machinery's implicit rate of 10% is known to Naw Corporation. Complete the following from the perspective of Naw Corporation. Which of the following financial statement items is impacted in this transaction? The problem is solving for: The calculation involves: Excel® Formula Variables = Total asset asset = asset PV To record the inception of the lease cash PV 33795 Accounts To record the first lease payment ( Rate ( .1 Date of Delivery Debit 33795 5000 Leases Obligation Present Value An Annuity Due Nper 10…
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