Problem 6. Sales and Leaseback On Januar y 1 20x1, Entity sold a building to Entity Y and simultaneously leased it back. Additional information follows: Fair value of building 1,000,000 Carrying amount of building 800,000 Remaining useful life of building 10 years Lease Term 5 years Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate 12% The transfer qualifies as a sale.

Problem 6. Sales and Leaseback On Januar y 1 20x1, Entity sold a building to Entity Y and simultaneously leased it back. Additional information follows: Fair value of building 1,000,000 Carrying amount of building 800,000 Remaining useful life of building 10 years Lease Term 5 years Annual rent payable at the end of each year 100,000 Implicit interest rate equal to market rate 12% The transfer qualifies as a sale.

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

ChapterM: Time Value Of Money Module

Section: Chapter Questions

Problem 4C

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Differential analysis for a lease or sell decision Burlington Construction Company is considering selling excess machinery with a book value of 115,000 (original cost of 275,000 less accumulated depreciation of 160,000) for 90,000, less a 6% brokerage commission. Alternatively, the machinery can be leased for a total of 100,000, for four years, after which it is expected to have no residual value. During the period of the lease, Burlington Construction Companys costs of repairs, insurance, and property tax expenses are expected to be 9,000. a. Prepare a differential analysis dated January 15 to determine whether Burlington Construction Company should lease (Alternative 1) or sell (Alternative 2) the machinery. b. On the basis of the data presented, would it be advisable to lease or sell the machinery? Explain.
WITH SOLUTION/COMPUTATION 61. At the beginning of current year. An entity leased office space for five years at an annual rental of P700,000 under an operating lease. On the same date, the entity incurred the following amounts: Bonus to obtain lease 300,000 First year’s rent 700,000 Last year’s rent 700,000 Security deposit refundable at lease expiration 800,000 Installation of new walls and offices 750,000 Insurance 50,000 Property taxes 40,000 Initial direct cost 100,000 What total amount of the expenses relating to the rent of office space should be reported for the current year?a. 1,100,000b. 1,000,000c. 1,800,000d. 1,340,000
SMC Inc. leased a machine on January 1,2011 to SM Inc. with the following pertinentinformation:Annual rental payable at the beginning of each year P500,000Lease term 5 yearsUseful life of machine 6 yearsFair value of machine on January 1,2011 2,400,000Incremental borrowing rate of lessee 14%Implicit interest rate of lessor known to lessee 12%Bargain purchase option at the end of lease term 100,000Residual value of the machine 200,000Initial direct cost incurred by lessee 300,000Prepaid bonus paid by lessee 400,000Estimated restoration cost in which lessee has contractual obligation 1,000,000Except from the fact that there is a guaranteed residual value of P300,000 by the lessee instead of bargain purchase option and theannual rental is payable at the end of each yearRequired: Based on your audit, determine the following:____________4. Book value of right of use asset on December 31, 2012____________5. Current Lease Liability on December 31,2011____________6. Noncurrent Lease Liability…
SMC Inc. leased a machine on January 1,2011 to SM Inc. with the following pertinentinformation:Annual rental payable at the beginning of each year P500,000Lease term 5 yearsUseful life of machine 6 yearsFair value of machine on January 1,2011 2,400,000Incremental borrowing rate of lessee 14%Implicit interest rate of lessor known to lessee 12%Bargain purchase option at the end of lease term 100,000Residual value of the machine 200,000Initial direct cost incurred by lessee 300,000Prepaid bonus paid by lessee 400,000Estimated restoration cost in which lessee has contractual obligation 1,000,000Problem 14: Except from the fact that there is a the guaranteed residual value of P300,000 by the lessee instead of bargain purchase option and the annual rental is payable at the end of each yearRequired: Based on your audit, determine the following:____________1. Initial amount recognized as right of use asset____________2. Initial amount recognized as leased liability____________3. Depreciation…
Question 09020 The following details relate to the Lease agreement between JMK :Ltd ( Lessor ) and PJK ltd ( lessee ) Asset leased - Machinery Annual lease payments = K20000 Lease term- 5 years r - 10 % Useful life of machinery = 10 years Lease term - 8 years Residue value - nil Required – Calculate the present value of the MLP
PROBLEM 5: Lease Agreement with UNGUARANTEED Residual Value, RESTORATION COST and ANNUAL EXECUTORY COST Lazy Company leased a building with useful life of 10 years on January 1, 2020 for period of 8 years with fixed annual rental ofP800,000 which is to be paid at the end of each year. The residual value of P100,000 is unguaranteed. Initial direct cost incurred andpaid by the lessee amounted to P150,000. Additional payment to the lessor to obtain the long-term arrangement of the leaseamounts to P100,000. Annual property taxes/insurance/maintenance and other executory costs paid P90,000. The lease agreementfurther provides restoration cost of the leased asset at the end of lease term for P250,000 (present value). The implicit interest ratein the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term
A financing entity acquired an asset for P3,165,000. This is immediately leased to another company on January 1, 2020. Annual lease payments are due at the end of each year, starting December 31, 2020. Unguaranteed residual value at the end of the lease term on December 31, 2024 is P500,000. Underlying asset will revert to the lessor at the end of the lease term. Lessor’s implicit interest rate is 12%. PV factors are shown below:· PV of 1 at 12% for five periods: 0.57· PV of ordinary annuity at 12% for five periods: 3.60How much is the annual rental payment? a. 740,278 b. 879,166 c. 800,000 d. 500,000
At the beginning of current year, Denver Company sold an equipment with remaining life of 10 years and immediately leased it back for 4 years at the prevailing market rental.Sale price at fair value: 6,000,000Carrying amount of equipment: 4,500,000Annual rental payable at the end of each year: 800,000Implicit interest rate: 10%Present value of an ordinary annuity of 1 at 10% for four periods: 3.17 What amount should be reported as gain on right transferred to the buyer-lessor? 866,0000750,000634,000 What amount should be reported as annual depreciation of the right of u 634,000475,500190,200253,600
3. At the beginning of 2020, VIXEN Company leased an equipment with the following information: Annual rental payable at the end of each year ₱450,000; residual value guarantee ₱50,000; Lease incentive received ₱20,000; Lease term 4 years; Useful life of the equipment 8 years; implicit interest rate 10%; present value of an ordinary annuity of 1 at 10% for 4 periods 3.17; present value of 1 at 10% for 4 periods 0.68. What is the cost of right of use asset?
b) The information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions (i) What is the lease liability for Telsan Company? (ii) Record the lease on Telsan Company’s books at the date of inception. (iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan…
PROBLEM 6: Leased asset was PURCHASED by the lessee Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental ofP600,000 which is to be paid at the end of each year. The lease contract provides that the lessee has guaranteed a P100,000 residualvalue of the leased asset. The implicit interest rate in the lease is 10%. Assuming that at December 31, 2022, Lazy Companypurchased the equipment for P1,300,000. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
At the beginning of current year, an entity leased an equipment from a lessor with the following pertinent information: Annual rental payable at the end of each year 1,000,000 Initial direct cost paid 400,000 Lease bonus paid to lessor before commencement of the lease 300,000 Lease incentive received 100.000 Discounted amount of restoring building as required by contract 700,000 Leasehold improvement 200,000 Purchase option that is reasonably certain to be exercised 500,000 Lease term 5 years Useful life of equipment…