Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $54,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Whispering’s incremental borrowing rate is 8%. Whispering is unaware of the rate being used by the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line method of depreciation on similar owned equipment.

Whispering Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2020. Annual rental payments of $54,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 6%; Whispering’s incremental borrowing rate is 8%. Whispering is unaware of the rate being used by the lessor. At the end of the lease, Whispering has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Whispering uses the straight-line method of depreciation on similar owned equipment.

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 5RE: Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the...

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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.
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.
Lessor 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.)
Lessor Accounting with Guaranteed Residual Value Use the information for Edom Company in E20-8, except that the residual value was guaranteed by Davis Company (the lessee). Required: 1. Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by Edom. 3. Prepare journal entries for Edom tor the years 2019 and 2020.
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.
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.
At what amount will Cielo company present its lease liability as of December 31,2022? A. P 2,204,900 B. P 1,925,390 C. P 2,459,000 D. P 2,690,000
At what amount will Cielo company present its lease liability as of December 31,2022? P 2,204,900 P 1,925,390 P 2,459,000 P 2,690,000
The accounting treatment is best explained using a numeric example. On January 1,2021, Tweenix Corp. (lessee) entered into an agreement to lease a piece of landscapingequipment from Morganette Ltd. (lessor). The lease details are below:Non-cancellable lease term 8 yearsLease bargain renewal option or a bargain purchase option None – equipmentreverts back to lessorResidual value (not guaranteed by lessee) $36,000Annual lease payment due each January 1 (annuity due) Lessor to determineEquipment cost to lessor $666,000Equipment estimated economic life 9 yearsEquipment fair value on January 1, 2021 $864,000Lessor has set the following implicit rate of return, which isknown to lessee7%Lessee incremental borrowing rate 8% 1.) Calculate the present value of the annuity due
Verizon Communications Inc. provides the following footnote relating to adoption of the new lease accounting standards (Topic 842) in its 10-Q report for the quarter ended March 31, 2019.The cumulative after-tax effect of the changes made to our condensed consolidated balance sheet for the adoption of Topic 842 were as follows: Adjustments ($ millions) At Dec. 31, 2018 due to Topic 842 At Jan. 1, 2019 Prepaid expenses and other $7,089 $(428) $6,661 Operating lease right-of-use assets - 30,213 30,213 Other assets 15,232 (2,662) 12,570 Accounts payable and accrued liabilities 22,501 (3) 22,498 Other current liabilities 8,239 (2) 8,237 Current operating lease liabilities - 3,810 3,810 Deferred income taxes 33,795 139 33,934 Noncurrent operating lease liabilities - 24,964 24,964 Other liabilities 13,922 (1,815) 12,107 Retained earnings 56,605 533 57,138 Noncontrolling interests 2,035 1 2,036 Rent expense for operating leases is recognized on a…
On January 1, 2021, the lessee company signed an operating lease to lease a building from the lessor. Lease payments are $57,000 per year and are made at the beginning of the year. Assume the following is the partial Lease Amortization Schedule (with only two rows and three columns shown) prepared by the lessee company: Date Annual Payment Interest on Liability 1/1/2022 57,000 44,000 1/1/2023 57,000 38,000 In the journal entry made on December 31, 2022, the lessee company should debit/credit Right-of-Use Asset by $___________. (Just enter the amount. Do not put a plus or minus sign in front of the amount.)
In the long-term liabilities section of its balance sheet atDecember 31, 2019, Gwapo Kaayo Co. reported a lease liability of₱75,000, net of current portion of ₱1,364. Payments of ₱9,000 weremade on both January 2, 2020, and January 2, 2021. Gwapo Kaayo’sincremental borrowing rate on the date of the lease was 11% and thelessor's implicit rate, which was known to Gwapo Kaayo, was 10%.In its December 31, 2x20, balance sheet, what amount should GwapoKaayo report as lease liability, net of current portion?