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Universal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under these arrangements at a 10% annual rate. The company leased an electronic typesetting machine it purchased for $30,900 to a local publisher, Desktop Inc., on December 31, 2020. The lease contract specified annual payments of $8,000 beginning January 1, 2021, the beginning of the lease, and each December 31 through 2022 (three-year lease term). The publisher had the option to purchase the machine on December 30, 2023, the end of the lease term, for $12,000 when it was expected to have a residual value of $16,000, a sufficient difference that exercise seems reasonably certain.
Required:
1. Show how Universal calculated the $8,000 annual lease payments for this sales-type lease.
2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing over the lease term.
3. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of the lease term.

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- Universal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Universal earns interest under these arrangements at a 8% annual rate. The company leased an electronic typesetting machine it purchased for $38,000 to a local publisher, Desktop Incorporated, on December 31, 2023. • The lease contract specified annual payments of $8,348 beginning January 1, 2024, the beginning of the lease, and each December 31 through 2025 (three-year lease term). • The publisher had the option to purchase the machine on December 30, 2026, the end of the lease term, for $18,600 when it was expected to have a residual value of $22,600, a sufficient difference that exercise seems reasonably certain. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Show how Universal…arrow_forwardUniversal Leasing leases electronic equipment to a variety of businesses. The company’s primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term direct financing leases. Universal earns interest under these arrangements at a 10% annual rate. The company leased an electronic typesetting machine it purchased for $30,900 to a local publisher, Desktop Inc., on December 31, 2015. The lease contract specified annual payments of $8,000 beginning January 1, 2016, the inception of the lease, and each December 31 through 2017 (three-year lease term). The publisher had the option to purchase the machine on December 30, 2018, the end of the lease term, for $12,000 when it was expected to have a residual value of $16,000. Required: 1. Show how Universal calculated the $8,000 annual lease payments for this direct financing lease. 2. Prepare an amortization schedule that describes the pattern of interest revenue for Universal Leasing over the…arrow_forwardUniversal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term sales-type leases. ⚫ Universal earns interest under these arrangements at a 10% annual rate. • The company leased an electronic typesetting machine it purchased for $36,900 to a local publisher, Desktop Incorporated, on December 31, 2023. The lease contract specified annual payments of $8,353 beginning January 1, 2024, the beginning of the lease, and each December 31 through 2025 (three-year lease term). ⚫ The publisher had the option to purchase the machine on December 30, 2026, the end of the lease term, for $18,700 when it was expected to have a residual value of $22,700, a sufficient difference that exercise seems reasonably certain. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Show how…arrow_forward
- Universal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. . Universal earns interest under these arrangements at a 10% annual rate. . Universal purchased an electronic typesetting machine on December 31, 2023, for $94,000 and then leased it to Desktop. Incorporated, a local publisher. The six-year operating lease term commenced January 1, 2024, and the lease contract specified annual payments of $8.400 beginning December 31, 2024, and on each December 31 through 2029. . The machine's estimated useful life is 15 years with no estimated residual value. • The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated. Required: 1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of 2024.…arrow_forwardUniversal Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternate financing by acquiring equipment and leasing it to customers under long-term leases. • Universal earns interest under these arrangements at a 9% annual rate. • Universal purchased an electronic typesetting machine on December 31, 2023, for $102,000 and then leased it to Desktop, Incorporated, a local publisher. • The six-year operating lease term commenced January 1, 2024, and the lease contract specified annual payments of $9,200 beginning December 31, 2024, and on each December 31 through 2029. • The machine's estimated useful life is 15 years with no estimated residual value. • The publisher had the option to terminate the lease after four years. At the beginning of the lease, there was no reason to believe the lease would be terminated. Required: 1. Prepare the appropriate entries for Universal Leasing from the beginning of the lease through the end of…arrow_forwardhslarrow_forward
- On January 1, 2021, Nath-Langstrom Services, Inc. a computer software training firm, leased serveral computers under a two-year operating lease agreement from Computer World Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by Computer World at a cost of $90,000 and were expected to have a useful life of 5 years with no residual value. Both firms record amortization and depreciation semiannually. Required: Prepare the appropriate entries for both (a) the lessee and (b) the lessor from the beginning of the lease through the end of 2021.arrow_forwardShapiro Inc. was incorporated in 2019 to operate as a computer software service firm, with an accounting fiscal year ending August 31. Shapiro's primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system. Shapiro has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $40,000 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 15 years. All rentals are payable on the first day of the month beginning with August 1, 2020, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer's chattel lien on the Alpha-3 system. This lease is to be accounted for as a finance lease by Shapiro, and it will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Shapiro 6% per year (0.5%…arrow_forwardOn January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-ye operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual inte of 4%. The contract calls for four rent payments of $10,000 each, payable semiannually on June 30 and December 31 each ye computers were acquired by ComputerWorld at a cost of $90,000 and were expected to have a useful life of five years with n residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD o PVAD of $1) (Use approprlate factor(s) from the tables provided.)arrow_forward
- NutraLabs, Inc., leased a protein analyzer to Werner Chemical, Inc., on September 30, 2021. NutraLabs manufactured the machine at a cost of $4.75 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $401,337, payable each September 30, December 31, March 31, and June 30, with the first payment at September 30, 2021. NutraLabs’ implicit interest rate is 12%. The useful life of the equipment is five years. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:1. Determine the price at which NutraLabs is “selling” the equipment (present value of the lease payments) at September 30, 2021.2. What pretax amounts related to the lease would NutraLabs report in its balance sheet at December 31, 2021?3. What pretax amounts related to the lease would NutraLabs report in its income statement for the year ended December 31, 2021?4. What pretax amounts related to the lease would…arrow_forwardFlint Inc. was incorporated in 2019 to operate as a computer software service firm, with an accounting fiscal year ending August 31. Flint’s primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system.Flint has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $31,000 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 15 years.All rentals are payable on the first day of the month beginning with August 1, 2020, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer’s chattel lien on the Alpha-3 system.This lease is to be accounted for as a finance lease by Flint, and it will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Flint 6% per year (0.50% per month).…arrow_forwardNutraLabs, Inc., leased a protein analyzer to Werner Chemical, Inc., on September 30, 2021. NutraLabs manufactured the machine at a cost of $5 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $391,548, payable each September 30, December 31, March 31, and June 30, with the first payment at September 30, 2021. NutraLabs’ implicit interest rate is 12%. The useful life of the equipment is five years.Required:1. Determine the price at which NutraLabs is “selling” the equipment (present value of the lease payments) at September 30, 2021 (to the nearest $000).2. What pretax amounts related to the lease would NutraLabs report in its balance sheet at December 31, 2021?3. What pretax amounts related to the lease would NutraLabs report in its income statement for the year ended December 31, 2021?4. What pretax amounts related to the lease would NutraLabs report in its statement of cash flows for the year ended December 31, 2021?arrow_forward
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