Hi kindly answer the questions in the attached file. Thank you :) Problem 8-2BEN Company entered into a finance lease on January 1, 2016. A third party guaranteedthe residual value of the asset under the lease term estimated to be =P1,200,000 onJanuary 1, 2021, the end of the lease term.Annual lease payments are =P1,000,000 due each December 31, beginning December31, 2016. The last payment is due December 31, 2020.The remaining useful life of the asset was six years at the commencement of thelease. Both the lessor and lessee used 10% as the interest rate.Required:1. Compute for the following:a. Net investment at the commencement dateb. Gross investment at the commencement datec. Unearned interest at the commencement dated. Interest income in 20162. Record the journal entry to be recorded for the year 2016. |

Net investment in the lease It is gross investment in the lease discounted by the interest rate…

Answered: Problem 8-2 BEN Company entered into a…

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.7E

See similar textbooks

Similar questions

Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2016. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2016. Required Assume that the lease is treated as an operating lease. Will the value of the forklift appear on Koffmans balance sheet? What account will indicate that lease payments have been made? Assume that the lease is treated as a capital lease. Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 (1,5104). Prepare the journal entry to record the first lease payment on December 31, 2016. Calculate the amount of depreciation expense for the year 2016. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2016?
FISH CHIPS INC, PART I LEASE ANALYSIS Martha Millon, financial manager for Fish it Chips Inc., has been asked to perform a lease-versus-buy analysis on a new computer system. The Computer costs 1,200,000, and if it is purchased. Fish Chips could obtain a term loan for the full amount at a 10% cost. The loan would be amortized over the 4-year life of the computer, with payments made at the end of each year The computer is classified as special purpose; hence, it falls into the MACRS 3-year class. The applicable MACRS rates are 33%. 45%. 15%, and 7%. If the computer is purchased, a maintenance contract must be obtained at a cost of 25,000, payable at the beginning of each year. After 4 years, the computer will be sold. Millons best estimate of its residual value at that time is 125,000. Because technology is changing rapidly however, the residual value is uncertain. As an alternative. National Leasing is willing to write a 4-year lease on the computer, including maintenance, for payments of 340,000 at the beginning of each year. Fish 4c Chipss marginal federal-plus-state tax rate is 40%. Help Millon conduct her analysis by answering the following questions. a. 1. Why is leasing sometimes referred to as "off-balance-sheet" financing? 2. What is the difference between a capital lease and an operating lease? 3. What effect does leasing have on a firms capital structure? b. 1. What is Fish Chips's present value cost of owning the computer? (Hint: Set up a table whose bottom line is a time line" that shows the cash flows over the period t = 0 to t = 4. Then find the PV of these cash flows, or the PV cost of owning.) 2. Explain the rationale for the discount rate you used to find the PV. c. 1. What is Fish Chipss present value cost of leasing the computer? (Hint: Again, construct a time line.) 2. What is the net advantage to leasing? Does your analysis indicate that the firm should buy or lease the computer? Explain. d. Now assume that Millon believes that the computers residual value could be as low as 0 or as high as 250,000, but she stands by 125,000 as her expected value. She concludes that the residual value is riskier than the other cash flows in the analysis, and she wants to incorporate this differential risk into her analysis. Describe how this can be accomplished. What effect will it have on the lease decision? e. Millon knows that her firm has been considering moving its headquarters to a new location, and she is concerned that these plans may come to fruition prior to the expiration of the lease. If the move occurs, the company would obtain new computers; hence, Millon would like to include a cancellation clause in the lease contract. What effect would a cancellation clause have on the risk of the lease?
Problem 10-5 On January 1, 2020, Lessee Company entered into a lease with Lessor Company for a new equipment. The lease stipulates that annual payments of P1,000,000 will be made for five years startingbDecember 31,2020. Lessee Company guaranteed a residual value of P474,060 at the end of the 5 year period. Th equipment will revert to the lessor at the lease expiration. The omplicit interest rate for the lease is 16% after considering the guaranteed residual value. The economic life of the equipment is 10 years. The present value factors at 16% for five periods are: Present value of 1 0.4761 Present value of an ordinary annuity of 1 3.2743 Required: Prepare a schedule of the annual payments showing reduction of liablity every year. Prepare a journal entries on the bools of Leese Company for 2020 and 2021. Prepare a journal entry on December 31,2024, end of lease term, to record the return…
Problem 10-8 Dexter Company has maintained a policy of acquiring equipment by leasing. On January 1, 2020, Dexter Company entered into a lease agreement for an equipment. The lease stipulates an annual rental payment of P600,000 to be paid every December 31 starting Decemeber 31, 2020. The lease contains neither a transfer of tittle to the lessee nor a purchase option. The equipment has a residual value of P300,000 at the end of the 5 year lease period but us unguaranteed by the lessee. Th economic life of the equipment is 8 years. The implicit interest rate is 12% after considerimg the unguaranteed residual value. The present value of an ordinary annuity of 1 at 12% for 5 period is 3.60. Required: Prepare journal entries on the books of Dexter Company for 2020. Prepare journal entry on December 31,2024 to record the return of the equipment to the lessor as required by the contract. The fair value of the equipment is P200,000.
Problem 11-2 On January 1, 2020, Gold Company entered into a 5-year lease of a floor of a building with the following terms: Annual rental for the first two years payable at thend of each year 200,000 Annual rental the next three years payable at the end of each year 300,000 Initial direct cost paid by lease 100,000 Leasehold improvement 250,000 Present value of restoration cost required by contract 50,000 Useful life of building 20 years Implicit interest rate 8% Discount rate for the restoration cost 5% PV of an ordinary annuity of 1 at 8% for two periods 1.783 PV of an ordinary annuity of 1 at 8% for three periods 2.577 PV of 1 at 8% for two periods 0.857 Required: 1.…
Problem 10- 10 Troy Company prepared the following amortization schedule for the lease of a machine from another entity. The machine has an economic life of six years. The lease agreement requires four annual payments of P330,000, including executory costs of P30,000, and the machine will be retured to the lessor at the end of the lease term. Minimum lease Interest Reduction Balance of payment Expense Liability Liablity 1/1/2020 985,150 12/31/2020 300,000 98,515 201,485 783,665 12/31/2021 300,000 78,366 221,634 562,031 12/31/2022…
Problem 11-5 On January 1,2020, Madelle Company entered into a lease for floor space with the following information. Floor space 5,000 square meters Annual rental payable at the end of each year 200,000 Lease term 5 years Implicit in the elase 10% Present value of an ordinary annuity of 1 for 10% at 5 periods 3.7908 On Jnaury 1, 2022, Madelle Company and the lessor agreed to amend the original terms of the lease with the following information. Floor space 3,750 square meters Annual rental payable at the end of each year 150,000 Implicit in the elase…
Problem 11-2 On January 1,2020, Gold Company entered into a 5-year lease of a floor of a building with the following terms: Annual rental for the first two years payable at the end of each year 200,000 Annual rental for the next three years payable at the end of each year 300,000 Initial diect cost paid by lessee 100,000 Leasehold improvement 250,000 Present value of restoration cost required by contract 50,000 Useful life of building 20 years Implicit interest rate 8% Discount rate for the restoration cost…
PROBLEM 4: Lease arrangement with Guaranteed Residual Value and annual fixed lease payment is paid at the beginning of each year, with DIRECT COST and LEASE INCENTIVE Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid in advance at the beginning of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset and a lease incentive P80,000. Initial direct cost incurred and paid by the lessee amounted to P200,000. The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
Question 5 On 1 July 2020, Pininfarina, an Italian automotive design service, acquired equipment under a four-year finance lease agreement from ABB Robotics. The equipment had a present value of $1,077,450. The equipment had an estimated useful life of six years. The implicit rate of interest on the equipment was 8% per annum. The lease involved four payments, three annual payments on 30 June each year of $304,000 and an additional final payment at the end of the lease of $400,000 on 30 June 2024. Pininfarina will return the equipment at the end of the lease to ABB Robotics. Required: a) Complete a lease schedule for the four years up to and including 30 June 2024. b) Record the General Journal entries relating to the lease in the first year ending 30 June 2021. Justify your treatment of the initial lease and depreciation c) Prepare the Balance Sheet extract for Pininfarina as at 30 June 2021.
32...continue On January 1, 2017, Metlock Corporation signed a 3-year noncancelable lease for several computers. The terms of the lease called for Metlock to make annual payments of $4,500 at the beginning of each year, starting January 1, 2017. The computers have an estimated useful life of 3 years and a $480 unguaranteed residual value. The computers revert back to the lessor at the end of the lease term. Metlock uses the straight-line method of depreciation for all of its property, plant, and equipment. Metlock’s incremental borrowing rate is 11%, and the lessor’s implicit rate is unknown. Prepare all necessary journal entries for Metlock for this lease through January 1, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit choose a transaction date…
PROBLEM 3: Lease arrangement with GUARANTEED Residual ValueLazy 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%. REQUIRED: Prepare table of amortization and journal entriesfor the entire lease term.

SEE MORE QUESTIONS

Recommended textbooks for you

Financial Accounting: The Impact on Decision Make…

Accounting

ISBN:

9781305654174

Author:

Gary A. Porter, Curtis L. Norton

Publisher:

Cengage Learning

Financial Accounting Intro Concepts Meth/Uses

Finance

ISBN:

9781285595047

Author:

Weil

Publisher:

Cengage

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Financial Accounting: The Impact on Decision Make…

Accounting

ISBN:

9781305654174

Author:

Gary A. Porter, Curtis L. Norton

Publisher:

Cengage Learning

Financial Accounting Intro Concepts Meth/Uses

Finance

ISBN:

9781285595047

Author:

Weil

Publisher:

Cengage

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781285867977

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS