The following information is provided for an equipment leased by Lessee from Lessor. Lessee and Lessor both use IFRS. Inception Date of Lease Annual Lease Payment (Due: Beginning of Year, Starting Jan 1, 2020) Purchase option at of Lease Term (Certain to be exercised by Lessee) Lease Term Economic Life of Leased Equipment Lessor's Cost Fair Value of Asset Lessor's implicit rate Lessee's incremental borrowing rate Salvage value at the end of economic life) Select one: True O False Unearned Interest Income 30,858 January 01,2020 The lessor will most likely classify this as Sales Type Lease. Sales 122,642 = 21,500 Cost of Goods Sold 3,000 Lessor will record the following at the beginning of the Lease term: Lease Receivable 122,642 ÷ 7 years 10 years 98,114 Same as present value of all future payments. 8%, known to Lessee Known to Lessee 7% 0 F Ti

The following information is provided for an equipment leased by Lessee from Lessor. Lessee and Lessor both use IFRS. Inception Date of Lease Annual Lease Payment (Due: Beginning of Year, Starting Jan 1, 2020) Purchase option at of Lease Term (Certain to be exercised by Lessee) Lease Term Economic Life of Leased Equipment Lessor's Cost Fair Value of Asset Lessor's implicit rate Lessee's incremental borrowing rate Salvage value at the end of economic life) Select one: True O False Unearned Interest Income 30,858 January 01,2020 The lessor will most likely classify this as Sales Type Lease. Sales 122,642 = 21,500 Cost of Goods Sold 3,000 Lessor will record the following at the beginning of the Lease term: Lease Receivable 122,642 ÷ 7 years 10 years 98,114 Same as present value of all future payments. 8%, known to Lessee Known to Lessee 7% 0 F Ti

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 8RE: Use the following information to decide whether this equipment lease qualifies as an operating,...

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At its inception, the lease term of Lease G is 65% of the estimated remaining economic life of the leased property. This lease contains a purchase option that is reasonably expected to be exercised. The lessee should record Lease G as: a. neither an asset nor a liability b. an asset but not a liability c. an expense d. an asset and a liability
Use the following information to decide whether this equipment lease qualifies as an operating, sales-type, or direct financing lease to a lessor. a. There is no transfer of ownership at the end of the lease term. There is no bargain purchase option. The lease term is 60% of the economic life of the leased property. The present value of lease payments, including a residual value guaranteed by the lessee, is 100% of the fair value of the leased property to the lessor. The collectability of the lease payments is reasonably assured. The leased asset was not of a specialized nature. b. Same as (a), except that the residual value is guaranteed by a third party, not the lessee. The present value of the residual value guarantee is 15% of the fair value of the leased property. c. Same as (a), except that: the present value of the lease payments, including a residual value guaranteed by the lessee, is only 50% of the fair value of the leased asset. The collectability of the minimum lease payments is not predictable.
Lessee and Lessor Accounting Issues The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are nude at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life. Required: 1. Record the lease (including the initial receipt of 2,000) and the receipt of the second and third installments of 2,000 in Ansons accounts. Carry computations to the nearest dollar. 2. Record the lease (including the initial payment of 2,000), the payment of the second and third installments of 2,000, and monthly depreciation in Bullards accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
Define each of the following terms: a. Lessee; lessor b. Operating lease; financial lease; sale-and-leaseback; combination lease; synthetic lease; SPE c. Offbalance sheet financing; capitalizing d. FASB Statement 13; ASU 2016-02 e. Guideline lease f. Residual value g. Lessees analysis; lessors analysis h. Net advantage to leasing (NAL) i. Alternative minimum tax (AMT)
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 RE20-1. Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease.
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).
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
On the lessor’s accounting, which of the following situations would prima facie lead to a lease contract being classified as an operating lease? Lease term is for a major part of the asset’s useful life Existence of a bargain purchase option Present value of minimum lease payments is 50% of the fair value of the leased asset Transfer of ownership by end of lease term
Which of the following is not one of the criteria for determining whether a lease is a finance lease? A. The asset cost is greater than $100,000B. The lease grants the lessee an option to purchase the asset that the lessee is reasonably certain to exerciseC. The lease term is for the major part of the remaining economic life of the assetD. Alease that transdies ownership of the asset to the lessee by the end of the lease term
Each period of a finance lease, the lessee records a lease expense that includes which of the following? Group of answer choices Interest expense on the lease liability, using the effective interest rate method and the discount rate it used to compute the present value of the liability at the lease commencement date; variable lease payments not included in the lease liability in the period in which the obligation for the variable payments is incurred; and changes in variable lease payments that depend on an index or rate. Neither A nor B is correct. Interest expense on the lease liability, using the effective interest rate method and the discount rate it used to compute the present value of the liability at the lease commencement date; variable lease payments not included in the lease liability in the period in which the obligation for the variable payments is incurred. Both A & B are correct.
Which of the following lease provisions would cause a lease to be classified as an operating lease? Select one: A. The collectability of lease payments by the lessor is unpredictable B. The lease contains a bargain purchase option C. The term of the lease is more than 75 percent of the estimated economic life of the leased property D. The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property