Oriole Services Inc. accounts for the lease of a truck. The lease includes a residual value guarantee at the end of the lease term of $17,500. Oriole estimates that the likelihood that the residual value will be $17,500 has a 50% certainty. Oriole feels that there is a 40% chance that the residual value will be $11,300 and a 10% chance that it will be $9,600. Calculate the probability-weighted value of the residual guarantee that needs to be included in the measurement of the lease payments liability recorded by Oriole when the lease is signed. Probability-weighted expected value $

Oriole Services Inc. accounts for the lease of a truck. The lease includes a residual value guarantee at the end of the lease term of $17,500. Oriole estimates that the likelihood that the residual value will be $17,500 has a 50% certainty. Oriole feels that there is a 40% chance that the residual value will be $11,300 and a 10% chance that it will be $9,600. Calculate the probability-weighted value of the residual guarantee that needs to be included in the measurement of the lease payments liability recorded by Oriole when the lease is signed. Probability-weighted expected value $

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 7RE: Use the information in RE20-6. However, assume that there is no bargain purchase option and that...

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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.
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?
Paragon Leasing has been approached by Mid-America Trucking Company (MATC) to provide lease financing for a fleet of new tractors. Each tractor will cost $140,000 and will be leased by MATC for 7 years with lease payments made at the beginning of each year. Paragon will depreciate the tractors on a straight-line basis to $0 but the actual market value at the end of 7 years is estimated to be $25,000. What are the required annual beginning-of-year lease payments if Paragon desires to earn a 14% after-tax rate of return? Assume a marginal tax rate of 40%.
Kuehner estimates that it can lease Parker Road Plaza for $18.50 per square foot (GLA) base rent with a 3 percent overage on gross sales in excess of $200 per square foot (GLA). The company expects rents to increase by 5 percent per year during the lease period and tenant reimbursements to run $8 per square foot (GLA) and to increase at the same rate as rents. Kuehner expects to have the shopping center 70 percent leased during the first year of operation After that, vacancies should average about 5 percent per year. The vacancy losses should be cal-culated on the entire gross potential income, which includes minimum rents, percentage rents and tenant reimbursements. Sales, which are expected to average $210 per square foot (GLA) for the first year of operation, should grow at 6 percent per year. The operating expenses are expected to average $14 per square foot of GLA for the first year and will increase at the same rate as the rents. Kuehner will collect an additional 5 percent of…
Mequon Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $47,000, and Mequon expects the machinery to have a residual value at the end of the lease term of $30,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $45,000 instead of $30,000. What would be the amount of the annual rental payments Mequon demands of Thiensville, assuming each payment will be made at the end of each year and Mequon wishes to earn a rate of return on the lease of 6%?
Metlock Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Metlock wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000 at the end of the lease term.If the fair value of the equipment at lease commencement is $105,000, what would be the amount of the annual rental payments Metlock demands of MTBA, assuming each payment will be made at the beginning of each year and Metlock wishes to earn a rate of return on the lease of 10%? Amount of equal annual lease payments?
Cullumber Company has a machine with a cost of $651000 which also is its fair value on the date the machine is leased to Park Company. The lease is for 6 years and the machine is estimated to have an unguaranteed residual value of $64000. If the lessor’s interest rate implicit in the lease is 12%, the 6 beginning-of-the-year lease payments would be 127,476 108,500 134,333 141,375
Marin Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Marin wants a guarantee that the residual value of the equipment at the end of the lease is at least $7,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000 at the end of the lease term.If the fair value of the equipment at lease commencement is $75,000, what would be the amount of the annual rental payments Marin demands of MTBA, assuming each payment will be made at the beginning of each year and Marin wishes to earn a rate of return on the lease of 6%?
Splish Brothers Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Splish Brothers wants a guarantee that the residual value of the equipment at the end of the lease is at least $ 4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $ 2,000 at the end of the lease term.If the fair value of the equipment at lease commencement is $ 115,000, what would be the amount of the annual rental payments Splish Brothers demands of MTBA, assuming each payment will be made at the beginning of each year and Splish Brothers wishes to earn a rate of return on the lease of 6%?
Larkspur Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Larkspur wants a guarantee that the residual value of the equipment at the end of the lease is at least $7,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000 at the end of the lease term.If the fair value of the equipment at lease commencement is $115,000, what would be the amount of the annual rental payments Larkspur demands of MTBA, assuming each payment will be made at the beginning of each year and Larkspur wishes to earn a rate of return on the lease of 11%? (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places, e.g. 5,275.)Click here to view factor tables. Amount of equal annual lease payments $
Macinski Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Ajax Capital has determined that the amount to be amortized on an extruder is $540,000. What annual lease payment must Ajax (lessor) require from the lessee if the required rate of return is 16%? Assume that the lease payments will be made at the beginning of each of the 7 years of the lease agreement and that the marginal tax rate is 40%. a. $222,827 b. $288,140 c. $115,256 d. $192,093