r-end by the lessee with a six-month advance notice. there is no renewal agreement. on july 8, 2016, paris company spent p20,000 on internal changes and painting. madeline's accounts showed the following data on january 1, 2016: initial cost of the building, p250,000 (accumulated depreciation, p60,000); estimated remaini
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37. on july 1, 2016, madeline company leased a small building and its site to paris company on a five-year contract. the lease provides for an advance rental payment of p10,000 which does not reduce any other payment, plus an annual rental payment of p40,000 payable cach july 1 starting in 2016. the lease can be terminated at any year-end by the lessee with a six-month advance notice. there is no renewal agreement. on july 8, 2016, paris company spent p20,000 on internal changes and painting. madeline's accounts showed the following data on january 1, 2016: initial cost of the building, p250,000 (accumulated
Required:
give the amounts that each party should report on its 2016 and 2017 income statements and balance sheets.
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- Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.Financial Statement Violations of U.S. GAAP The following are the financial statements issued by Allen Corporation for its fiscal year ended October 31, 2019: Notes to Financial Statements: 1. Long-Term Lease. Under the terms of a 5-year, noncancelable lease for a building, Allen is obligated to make annual rental payments of 40,000 in each of the next 4 fiscal years. 2. Pension Plan. Substai1tially all employees are covered by Allens defined benefit pension plan. Pension expense is equal to the total of pension benefits accrued and paid to retired employees during the year. Because it is a defined benefit plan that is paid every year, no pension liability exists. 3. Patent. The patent had an estimated remaining life of 10 years at the time of purchase. Allens patent was purchased from Apex Corporation on January 1, 2019, for 250,000. 4. Deferred Income Tax Payable. The entire balai1ce in the Deferred Income Tax Payable account arose from tax-exempt municipal bonds that were held during the previous fiscal year, giving rise to a difference between taxable income and reported net earnings for the fiscal year ended October 31, 2019. The deferred liability amount was calculated on the basis of past tax rates. 5. Warrants. On January 1, 2018, one common stock warrant was issued to shareholders of record for each common share owned. An additional share of common stock is to be issued upon exercise of 10 stock warrants and receipt of an amount equal to par value. For the 6 months ended October 31, 2019, the average market value for Allens common stock was 5 per share and no warrants had yet been exercised. 6. Contingent Liability. On October 31, 2019, Allen was contingently liable for product warranties in an amount estimated to aggregate 75,000. Required: Next Level Review the preceding financial state1nents and related notes. Identify any inclusions or exclusions from them that would be in violation of GAAP, and indicate corrective action to be taken. Do not comment as to format or style. Respond in the following order: 1. Balance sheet 2. Notes 3. Income statement 4. Statement of retained earnings 5. GeneralLessor Accounting Issues Ramsey Company leases heavy equipment to Terrell Inc. on March 1, 2019, on the following terms: 1. Twenty-four lease rentals of 2,950 at the beginning of each month are to be paid by Terrell, and the lease is noncancelable. 2. The cost of the heavy equipment to Ramsey was 55,000. 3. Ramsey uses an implicit interest rate of 18% per year and will account for this lease as a sales-type lease. Required: Prepare journal entries for Ramsey (the lessor) to record the lease contract on March 1, 2019, the receipt of the first two lease rentals, and any interest income for March and April 2019. (Round your answers to the nearest dollar.)
- Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with Darwin Company, the lessee, to provide heavy equipment beginning January 1, 2017. The lease is appropriately classified as a sales-type lease. The lease terms, provisions, and related events are as follows: The lease is noncancelable, has a term of 8 years, and has no renewal or bargain purchase option. The annual rentals are 65,000, payable at the end of each year. The interest rate implicit in the lease is 15%. Darwin agrees to pay all executory costs directly to a third party. The cost of the equipment is 280,000. The fair value of the equipment to Calder is 308,021.03. Calder incurs no material initial direct costs. Calder expects that it will be able to collect all lease payments. Calder estimates that the fair value at the end of the lease term will be 50,000 and that the economic life the equipment is 9 years. This residual value is guaranteed by Darwin. The following present value factors are relevant: PV of an ordinary annuity n = 8, i = 15% = 4.487322 PV n = 8, i = 15% = 0.326902 PV n = 1, i = 15% = 0.869565 Required: 1. Determine the proper classification of the lease. 2. Prepare a table summarizing the lease receipts and interest income earned by Calder for this lease. 3. Prepare journal entries for Calder for the years 2019, 2020, and 2021. 4. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the present value of next years payment approach to classify the lease receivable as current and noncurrent. 5. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the change in present value approach to classify the lease receivable as current and noncurrent.Lessee and Lessor Accounting Issues Diego Leasing Company agrees to provide La Jolla Company with equipment under a noncancelable lease for 5 years. The equipment has a 5-year life, cost Diego 25,000, and will have no residual value when the lease term ends. The fair value of the equipment is 30,000. La Jolla agrees to pay all executory costs (500 per year) throughout the lease period directly to a third party. On January 1, 2019, the equipment is delivered. Diego expects a 14% return on its net investment. The five equal annual rents are payable in advance starting January 1, 2019. Required: 1. Assuming this is a sales-type lease for the Diego and a finance lease for the La Jolla, prepare a table summarizing the lease and interest payments suitable for use by either party. 2. Next Level On the assumption that both companies adjust and close books each December 31, prepare journal entries relating to the lease for both companies through December 31, 2020, based on data derived in the table. Assume that La Jolla depreciates similar equipment by the straight line method
- On January 1, 20x1, ABC Co. enters into a 4-year lease of office equipment. Annual rental payable at the end of each year is P12,000. As inducement in entering into the lease, the lessor makes the first 3 months of the lease as rent-free. ABC Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. Requirement: Provide the journal entries.Leases The company leases its main offices for $3,500 per month. On its face, the lease expires December 31, 2017, but there is an option to extend for an additional 5 years at $4,500 per month. The space was built out by the lessor, to suit the lessee, prior to occupancy, and there have been no significant improvements to the space since. The company also rents its electronic parts storage warehouse for $1,000 per month. That lease, which expires 12.31.201, has an automatic rent escalation of 10% per year for every year in which the consumer price index increases. All rent payments for 2014 have been made and the payments have been appropriately recorded. Note: this is space rented for the company to occupy, not space they rent out to others. On July, 1, 2014, leased a new stamping press. The fair value of the equipment is $948,142. The lease calls for 120 monthly Payment of $8,000. XYZ, Inc.’s marginal borrowing rate is higher than the 6% rate implicit in the lease. The estimated…At January 1, 2016, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. The lease agreement specifies annual payments of $25,000 beginning January 1, 2016, the beginning of the lease, and at each December 31 thereafter through 2023. The equipment was acquired recently by Crescent at a cost of $176,000 (its fair value) and was expected to have a useful life of 12 years with no residual value. The company seeks a 10% return on its lease investments. By this arrangement, the risks and rewards of ownership are deemed to have been transferred to the lessee. What will be the effect of the lease on Café Med’s earnings for the first year (ignore taxes)?
- AB leases 100 desk phones for use in one of its offices. The contract term states that there will be an annual rental payment of R9 000 for eight years. The lease arrangement begins on 1 July 20x0. As an incentive to AB, no payment is required in the first year. The desk phones are to be classified as low-value items.Prepare the correct debit or credit entry that would be required in Entity AB’s income statement for the year ended 30 June 20x1 in respect of the above transaction.On January 1, 20x1, ABC enters into a 4-year lease of office equipment. The rent in 20x1 is ₱10,000and shall increase by 10% annually starting on January 1, 20x2. Rentals are payable at the end of each year. ABC Co. pays the lessor a lease bonus of ₱5,000 on January 1, 20x1. ABC Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. How much is the lease expense in 20x1?52-53 On August 1, 2019, Pha Aviation leased two helicopters from Wayo Aircraft for an initial period of 12 months with a provision for a continuation of a month-to-month basis. The lease is property classified under a low value asset. Lease payments are to be made as follows:1st two months - P15,000 per monthNext three months - P12,000 per monthNext three months - P10,000 per monthLast four months - P 7,500 per monthAfter the first year, the rent continues at P6,000 per month. a. How much is Pha Aviation’s rent expense for the year ended December 31, 2019?A. P10,500 B. P52,500 C. P66,000 D. P126,000 b. How much is Pha Aviation’s prepaid rent balance at December 31, 2019?A. P13,500 B. P23,500 C. P55,500 D. P66,000
