On January 1, 2025, Haystack, Inc. leased equipment to Silver Point Company. The equipment had a cost and fair value of $780,000. The 5-year lease calls for equal annual payments at the beginning of each year. The equipment has an expected useful life of 5 years. The rate implicit in the lease is 8% but the lessee's incremental borrowing rate is 10%. What are the equal annual lease payments the lessor will charge? (Round to whole dollars) D The present value of an ordinary annuity at: 10% for 5 periods is 3.79079 8% for 5 periods is 3.99271 The present value of an annuity due at: 10% for 5 periods is 4.16986 8% for 5 periods is 4.31213 The present value of a single sum of $1 at: 10% for 5 periods is .62092 8% for 5 periods is .68058 O A. $181,972 OB. $180,885 OC. $175,820 O D. $195,356. O E. $162,795

On January 1, 2025, Haystack, Inc. leased equipment to Silver Point Company. The equipment had a cost and fair value of $780,000. The 5-year lease calls for equal annual payments at the beginning of each year. The equipment has an expected useful life of 5 years. The rate implicit in the lease is 8% but the lessee's incremental borrowing rate is 10%. What are the equal annual lease payments the lessor will charge? (Round to whole dollars) D The present value of an ordinary annuity at: 10% for 5 periods is 3.79079 8% for 5 periods is 3.99271 The present value of an annuity due at: 10% for 5 periods is 4.16986 8% for 5 periods is 4.31213 The present value of a single sum of $1 at: 10% for 5 periods is .62092 8% for 5 periods is .68058 O A. $181,972 OB. $180,885 OC. $175,820 O D. $195,356. O E. $162,795

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...

See similar textbooks

Similar questions

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 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
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).
Using the information provided, what transaction represents the best application of the present value of an annuity due of $1? A. Falcon Products leases an office building for 8 years with annual lease payments of $100,000 to be made at the beginning of each year. B. Compass, Inc., signs a note of $32,000, which requires the company to pay back the principal plus interest in four years. C. Bahwat Company plans to deposit a lump sum of $100.000 for the construction of a solar farm In 4 years. D. NYC Industries leases a car for 4 yearly annual lease payments of $12,000, where payments are made at the end of each year.
Use the information in RE20-6. However, assume that there is no bargain purchase option and that Montevallo guarantees the 20,000 estimated residual value at the end of the 10-year lease. Montevallo estimates that it is probable that it will have to pay 15,000 cash due to the residual value guarantee. Calculate the present value of the lease payments. Round your answer to the nearest dollar.
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.
Electro Corporation bought a new machine and agreed to pay for it in equal annual installments of 5,000 at the end of each of the next 5 years. Assume a prevailing interest rate of 15%. The present value of an ordinary annuity of 1 at 15% for 5 periods is 3.35. The future amount of an ordinary annuity of 1 at 15% for 5 periods is 6.74. The present value of 1 at 15% for 5 periods is 0.5. How much should Electro record as the cost of the machine? a. 12,500 b. 16,750 c. 25,000 d. 33,700
On January 1, 2020, Edgar Company entered into a six-year lease with a lessor. Annual lease payments of P1,200,000 including annual executory cost of P200,000 are payable at the end of each year. Edgar Company knows that the lessor expects a 10% return on the lease. EdgarCompany has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of six years. In addition, a third party has guaranteed to pay the lessor a residual value of P400,000 at the end of the lease. In the December 31, 2020 statement of financial position, what is the principal amount of the lease obligation?
On December 31, 2020, the lessor company leases equipment to the lessee company with 8 equal annual payments of $113,000 each, payable beginning December 31, 2020. The lessee company agrees to guarantee the $61,000 residual value of the asset at the end of the lease term. The expected value of the residual is $13,000. The lessee’s incremental borrowing rate is 10%, and the lessor’s implicit interest rate is not known by the lessee. What is the amount of initial lease liability the lessee should record on December 31, 2020? (You must choose from the following present/future values.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 8 periods 2.14 0.47 11.44 5.33 5.87
On January 1, 2023, Shrek Inc. enters into a seven-year non-cancellable lease with Fiona Ltd. for machinery having an estimated useful life of nine years and a fair value of $4,300,000. Shrek’s incremental borrowing rate is 8% and Fiona’s implicit rate is 6%. Shrek uses the straight-line depreciation method to depreciate assets. Shrek will make annual lease payments on January 1 of each year. The lease includes a guarantee by Shrek Inc. that Fiona Ltd. will realize $100,000 from selling the asset at the expiration of the lease, which Shrek expects to pay. Both companies adhere to IFRS. Instructions a) Calculate the lease payment Fiona Ltd. will charge Shrek (assuming no mark-up of the machinery from fair value). Round to the nearest dollar. b) Calculate the present value of the lease payments. Round to the nearest dollar. c) What kind of lease is this to Shrek Inc.? Why? d) Present the journal entries that Shrek Inc. would record during the first year of the lease. Round to the nearest…
On December 31, 2020, Roque Company leased machinery with a fair value of $1,260,000 from Sage Operations. The agreement is a six-year noncancelable lease requiring annual payments of $240,000 beginning December 31, 2020. Roque accounts for this lease as a finance lease. Roque’s incremental borrowing rate is 11%, but they know that the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. What amount should Roque report as a lease liability on their December 31, 2020 balance sheet?