Roger Company leases a computer equipment under a direct financing lease. The equipment has no residual value at the end of the lease and the lease does not contain bargain purchase option. The entity wishes to earn 8% interest on a 5-year lease of equipment with a cost of P 3,234,000. The present value of an annuity due of 1 at 8% for 5 years is 4.312. What total amount of interest revenue should be recognized over the lease term? Show your solution.
Q: Shamrock Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment…
A: A lease is an agreement where an asset is taken on rent and Lessor receives Lease rental in return.…
Q: ABC Company leased into a ten-year non-cancelable lease requiring year-end payments of P1,200,000 on…
A: Lease Payment: P1,200,000 Implicit interest rate: 10% Initial direct cost: P150,000 Amount financed…
Q: At the beginning of the current year, a company leased computer equipment to another company under a…
A:
Q: Swifty Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does…
A: In this question, we will record lease rent of 44000 at the end of the year and depreciation of…
Q: Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of €70,000 and fair…
A: Since we only answer up to 3 sub-parts, we’ll answer the first 3. Please resubmit the question and…
Q: Macinski Leasing leases a new machine to Sharrer SA. The machine has a cost of $70,000 and fair…
A: Journal: Journal is the book of original entry. Journal consists of the day-to-day financial…
Q: Flounder Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement…
A: A lease refers to a contract that allows the lessee to pay a certain amount of money to the lessor…
Q: Glade Company leases computer equipment to customers under direct financing leases. The equipment…
A: Interest revenue is the amount of money received by the lessor in the form of interest. It is the…
Q: Grygiel Company leases a nonspecialized machine with a fair value of $50,000 to Baker Company. The…
A: The fair value of lease should be equal to present value of lease payments and the residual value.…
Q: Madden Industries manufactures equipment for sale or lease. The equipment has a fair value or…
A: Madden Industries- Lessor Cost of Equipment = $ 450,000 Fair Market Value= $ 600000 Wishes to ear…
Q: On January 1, 2018, Haley Corporation sold a Machine to Quick Finance for P140,000 and immediately…
A: Lease liability: It represent the amount recognized by a lessee on its statement of financial…
Q: Car Co. is negotiating to lease a piece of equipment to MT plc. MT plc requests that the lease be…
A: Present value of GRV = 5,000 * PV factor at 8% for 9th period = 5,000 * 0.500249 = 2,501 Fair value…
Q: payments of $53,000 are to be made at the beginning of each lease year (December 31). The interest…
A: A journal entry is an accounting entry which is used to record a business recorded in the accounting…
Q: Kingbird Company leases an automobile with a fair value of $15,671 from John Simon Motors, Inc., on…
A: A lease is a written agreement that indicating the conditions within which a lessor acknowledges to…
Q: On January 1, 2020, Swifty Animation sold a truck to Peete Finance for $49,000 and immediately…
A: The company should be needs to record the leaseback transactions.
Q: Dunbar Corporation can purchase an asset for $29,000; the asset will be worthless after 15 years.…
A: Alternative 1 Purchase of asset =$29,000 Alternative 2 Annual lease Payment = 2494 Years(n) = 15…
Q: At the beginning of 2021, Killion Co. leased furniture to GameStop under a seven-year operating…
A: Annual Depreciation (straight line method) = (Cost of the assets - Residual value) / Expected life…
Q: Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual…
A: The amount to be recorded for the leased asset at the lease inception is the present value of annual…
Q: On 1/1/21, Elliott Company leased machinery with a fair value of $1,185,000 from Greene Corporation.…
A: Lease is an agreement between leaser and lessee in which leaser allows lessee to use her land…
Q: Kingbird Company leases an automobile with a fair value of $15,671 from John Simon Motors, Inc., on…
A:
Q: Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual…
A: Working note: Computation of amount of lease liability on the inception of lease:
Q: Hatfield Corporation leases a tractor from Star Leasing with a five-year non-cancelable lease on…
A: Solution Concept In the given question The lease period covers majority of the life of the asset…
Q: Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to…
A: Introduction: A capital lease is a type of lease in which the lessee records the investment product…
Q: Neal Corp. entered into a nine-year lease on a warehouse on December 31, 20x1. Lease payments of…
A: A lease is a contract between two persons in which the holder of the asset gives right to use the…
Q: On January 2, 2018, Hanson Leasing Company leases equipment to Foley Co. with 5 equal annual…
A: To Calculate the Amount to be debited to Right of use assets we have to 1. Calculate the present…
Q: Integrity Company uses leases as a means of selling equipment. On July 1, 2021, the company leased a…
A: The cost of sale is equal to the carrying amount less the present value of unguaranteed residual…
Q: On January 1, 2020, Irwin Animation sold a truck to Peete Finance for $35,000 and immediately leased…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of…
Q: Delaney AG leases an automobile with a fair value of 10,000 from Simon Motors, on the following…
A: The Present value of lease amount includes the annual lease payments and the guaranteed residual…
Q: Faye Company leases computer equipment to customers under direct financing lease. The equipment has…
A: Definition: Lease: Lease is a contractual agreement whereby the right to use an asset for a…
Q: Delaney AG leases an automobile with a fair value of 10,000 from Simon Motors, on the following…
A: Hello I am only answering first three subpart as per the policy and if you want others to be…
Q: On January 1, 2020, Swifty Animation sold a truck to Peete Finance for $49,000 and immediately…
A: Journal entry is a primary entry that records the financial transactions initially.
Q: lade Company leases computer equipment to customers under direct financing lease. The equipment has…
A: The amount of interest earned by a corporation over a given time period is referred to as interest…
Q: Macinski Leasing Company Leases a new machine to Sharrer Corporation. The machine has a cost of…
A:
Q: Sage Hill Company leases an automobile with a fair value of $12,257 from John Simon Motors, Inc., on…
A: Time value It tells that value received today has more value than that of receiving the same value…
Q: Kit Company leased equipment at an annual rental of P45,000 payable in advance for five years.…
A:
Q: Macinski Leasing Company Leases a new machine to Sharrer Corporation. The machine has a cost of…
A: A lease can be defined as a contract by which one party grants the use of land, property, services,…
Q: Macinski Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of…
A: Lease is a type of agreement in which one person gives the land, property, or some equipments to…
Q: Delaney AG leases an automobile with a fair value of €10,000 from Simon Motors, on the following…
A: 1. What is the present value of the lease payments to determine the lease liability? The present…
Q: Pina Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does…
A: Solution - journal entries…
Q: On January 1, 2020, Most Inc. leases a machine used in its operations. The annual lease payment is…
A: Lease agreement: Lease agreement can be defined as the legal agreement between the lessor and…
Q: Dunbar Corporation can purchase an asset for $30,000; the asset will be worthless after 14 years.…
A: Excel Spreadsheet:
Q: Glade Co. leases computer equipment to customers under direct-financing leases. The equipment has no…
A:
Q: Oriole Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning…
A:
Q: Wildhorse, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual…
A: Financial lease is that lease where lessor has given right to use the assets to lessee which cover…
Q: Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing…
A:
Q: Louis Company leased a machine from Millennium Corporation on January 1, 2010. The first annual…
A: Solution: If Millennium Corporation recorded the net investment in lease higher than the liability…
Q: Glade Co. leases computer equipment to customers under direct-financing leases. The equipment has no…
A: Solution: Lease receivables should be recognized initially = Fair value of lease equipment
Q: On January 1, 2021, Rick's Pawn Shop leased a truck from Corey Motors for a seven-year period with…
A: Lease :— A lease is an agreement whereby the Lessor convey to the lessee in return for a Payment or…
Step by step
Solved in 2 steps
- Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
- 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.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
- 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.Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
- Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910Lessor 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.)