Question 5 of 7 View Policies Current Attempt in Progress Blossom Services Inc. accounts for the lease of a truck. The lease includes a residual value guarantee at the end of the lease term of $18,100. Blossom estimates that the likelihood that the residual value will be $18, 100 has a 55% certainty. Blossom feels that there is a 40% chance that the residual value will be $12,000 and a 5% chance that it will be $10,000. Calculate the probability - weighted value of the residual guarantee that needs to be included in the measurement of the lease payments liability recorded by Blossom when the lease is signed. Probability - weighted expected value

Question 5 of 7 View Policies Current Attempt in Progress Blossom Services Inc. accounts for the lease of a truck. The lease includes a residual value guarantee at the end of the lease term of $18,100. Blossom estimates that the likelihood that the residual value will be $18, 100 has a 55% certainty. Blossom feels that there is a 40% chance that the residual value will be $12,000 and a 5% chance that it will be $10,000. Calculate the probability - weighted value of the residual guarantee that needs to be included in the measurement of the lease payments liability recorded by Blossom 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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22.... urrent Attempt in Progress Partially correct answer icon Your answer is partially correct. Carla Corporation enters into a 7-year lease of equipment on December 31, 2019, which requires 7 annual payments of $37,300 each, beginning December 31, 2019. In addition, Carla guarantees the lessor a residual value of $19,400 at the end of the lease. However, Carla believes it is probable that the expected residual value at the end of the lease term will be $9,700. The equipment has a useful life of 7 years.Prepare Carlas' December 31, 2019, journal entries assuming the implicit rate of the lease is 9% and this is known to Carla. (Credit account titles are automatically indented when amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.)Click here to view factor tables. Date Account Titles and Explanation Debit Credit…
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?
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.
Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?
PROBLEM 10: LEASE MODIFICATION WITH EXTENSION of lease term Laze Company entered into a lease agreement for a stall space for its products on January 1, 2020. Some of the agreement in the lease contract are as follows: Annual rental payable at end of each year starting December 31, 2020 P350,000 Lease term 6 years Implicit interest rate in the lease 10% Laze Company proposed an amendment on the original lease contract on January 1, 2023, and was approved by the lessor. The amendment is to extend the lease term for another 2 years with the following additional features: Annual rental payable at end of each year starting December 31, 2023 P350,000 Implicit interest rate in the lease 11% REQUIRED:: Prepare table of amortization and journal entries for the entire lease term.
PROBLEM 8: Lease agreement with VARIABLE PAYMENTS Li Zi Company entered into a lease of building on January 1, 2020. The lease contract provided the following information: Lease term 10 years Estimated useful life of leased asset 12 years Annual rental payable at end of each year for the first 5 years 400,000 Annual rental payable at end of each year for the next first 5 years 550,000 Interest rate implicit in the lease 10% No purchase option nor transfer of title REQUIRED: Prepare table of amortization and journal entries for the entire lease term.
View Policies Current Attempt in Progress Callaway Golf Co. leases telecommunications equipment from Blossom Company. Assume the following data for equipment leased from Blossom Company. The lease term is 5 years and requires equal rental payments of $24,800 at the beginning of each year. The equipment has a fair value at the commencement of the lease of $120,000, an estimated useful life of 8 years, and a guaranteed residual value at the end of the lease of $12,400. Blossom set the annual rental to earn a rate of return of 5%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option, and is not a specialized asset. How should Callaway classify this lease? eTextbook and Media Save for Later Attempts: 0 of 3 used Submit Answer
Problem 3. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co leased equipment to XYZ, Inc. Information on the lease is shown below: Cost of Equipment P330, 647 5 years Useful Life of Equi pment Lease Term 4 years Annual Rent Payable at the end of each year 100,000 Interest Rate Implicit in the lease 10% Residual Value 20,000 The equipment will revert back to АВС at the end of the lease term. The lease is classified as direct financing lease. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross Investment in the lease on January 1, 20x1 Net Investment in the lease on January 1, 20x1 Unearned Interest income on January 1, 20x1 b. c. d. Prepare the journal entries on January 1, 20x1 and December 31, 20х1 е. Prepare the journal entry on December 31, 20x4 if the fair value of the residual value i. P20,000 ii. P5,000
Please use Excel Broncos Company leased equipment from Wilson-Tech Leasing on January 1, 2022.Other information:Lease term 3 yearsAnnual payments $40,000 on January 1 each yearLife of asset 3 yearsImplicit interest rate 8%There is no expected residual value.Required: 1. Using the Excel (not formula or PV tables), compute the amount of Right-of-Use Asset as thepresent value of future lease payments. Explain how you compute this PV. 2. Prepare appropriate journal entries for Broncos for 2022. Assume straight-line amortizationand a December 31 year-end. Round your answers to the nearest whole dollar amounts. January 1, 2022: December 31, 2022:
Problem 3 On January 1, 2022, Grab Services, Inc. leased delivery trucks from Henri Industries. The lease agreement for the P3,000,000 (fair value and present value of the lease payments) delivery trucks specified four equal payments at the end of each year. The useful life of the delivery trucks was expected to be 8 years with no residual value. The implicit rate on the lease was 10%. 27. Determine the annual lease payment to be made by Grab Services?
Question 2 On January 1, 2021, Harry Company leased ten trailers to Jennifer Company under a five- year non-cancelable lease agreement. The following provides information about the lease and the trailers: 1.-For each trailer, the fair value is €65,000, cost is €44,000, and expected useful life is 7- years. 2.→Equal annual payments that are due on January 1 each year provide Harry with a 6% return on net investment. 3.→Titles to the trailers pass to Jennifer at the end of the lease. 4.→Collectability of the lease payments is probable. Required (a) → Calculate the annual lease payment. (Round to the nearest dollar.) → (b)- Prepare alease amortization schedule for Harry for the first three years. (c) -Prepare the journal entries for the lessor for 2021 to record the lease agreement, the receipt of the lease rentals, and the recognition of revenue (assume the use of a perpetual inventory method and round all amounts to the nearest dollar).
Problem 3 On January 1, 2020, Berto Company leased a machinery with an estimated useful life of 8 years. The contract is a six-year noncancelable lease with a 10% implicit interest rate. PV of an annuity due of 1 at 10% for six periods 4.7908 PV of 1 at 10% for six periods 0.5645 The lease contains neither a transfer of title to the lessee nor a purchase option. The lease requires annual payments of P500,000 beginning January 1, 2020. The entity had a residual value guarantee of P400,000 when the machinery is returned to the lessor upon the lease expiration. Required: 1. Prepare a table of amortization of the lease liability and interest expense. 2. Prepare journal entries for 2020 and 2021. 3. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume the fair value of the asset is P450,000. 4. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume the fair value of the asset is P300,000.