Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing Ltd, which then leases it to Upland for $60,000 per annum for three years. The payments are to be made at the commencement of each year including the first year of the lease period. Wilcox Ltd incurs
Q: On January 1,2022, ABC Company leased its equipment to DEF Company under a 3 year operating lease at…
A: Lease is the agreement which is a contractual arrangement and states that the user to pay the asset…
Q: At the beginning of current year, Lessor Company leased a machine to Lessee Company. The machine had…
A: Annual lease payment = 1,730,541 Lease term = 5 years Residual value of the machine = 4,00,000…
Q: Corinth Co. leased non-specialized equipment to Athens Corporation for an eight-year period, at…
A: Leases are two types: Finance lease Operating lease Following points to be satisfied, a lease to…
Q: ABC Company decided to enter the leasing business. The entity acquired a specialized packaging…
A: Present value of residual value of the machine = residual value of the machine x present value of 1…
Q: Corinth Co. leased nonspecialized equipment to Athens Corporation for an eight-year period, at which…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period…
Q: Oriole Corporation is a lessee with a finance lease. The asset is recorded at $720000 and has an…
A: As lease agreement provides transfer of title of asset to the lessee at the end of the lease term,…
Q: Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual…
A: As per US GAAP, the implicit rate is known by the lessee [Pisa, Inc.]. Then implicit rate of 8% is…
Q: ABC Company decided to enter the leasing business. The entity acquired a specialized packaging…
A: Present value of residual value of the machine = residual value of the machine x present value of 1…
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: On January 1, 2020, Bacarra Company leased an asset for a term of six years. Annual rentals of…
A: Sales type lease: A sales-type lease is recorded by lessor at its net investment in lease Net…
Q: Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to…
A: Annual lease payment = Total annual Lease payment - Payment for maintenance, insurance, and taxes =…
Q: On January 1, 2016, Dean Corporation signed a ten-year noncancelable lease for certain machinery.…
A: Depreciation expense on right to use assets and Interest expense in lease accounting: The right to…
Q: Lukawitz Industries leased non-specialized equipment to Seminole Corporation for a four-year period,…
A: Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period…
Q: Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end…
A: A capital lease is a lease in which the lessor only finances the leased asset, and all other rights…
Q: what is the amount recorded for the leased asset at the lease inception?
A: In the question, Pisa Inc. leased the equipment for 4 years and made the leased payment of Rs.…
Q: Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual…
A: working note: 1. first, we would consider PV ANNUITY DUE i.e., 3.57710 $344,152*3.57710…
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: Marin Company leases a building and land. The lease term is 7 years and the annual fixed payments…
A: Total lease payments is calculated by multiplying Lease term by the Annual lease payment.
Q: Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make…
A: SOLUTION- COMPUTATION OF PRESENT VALUE OF LEASE PAYMENTS AS- FORMULA- PRESENT VALUE = ANNUAL…
Q: Sassy Company enters into a five-year lease agreement with Corral Company (lessor) over equipment on…
A:
Q: CAPBS Inc. enters into a lease agreement to acquire the use of a piece of machinery forfour years…
A: Since you have posted a question with multiple sub-parts, we will solve first three sub- parts for…
Q: Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to…
A: Computation of present value of lease payment: Hence, the value of leased asset will be recorded at…
Q: At the beginning of the current year, CPA Co, leased a machine to CMA Co. The machine had an…
A: Finance Lease :— A lease is an agreement whereby the Lessor conveys to the Lessee in return for a…
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: BenLin Co. is a lessee under finance lease. The asset is recorded at P4,500,000 and has economic…
A:
Q: Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end…
A: Correct option: Finance lease because the lease term covers the major part of the economic life of…
Q: ABC Company decided to enter the leasing business. The entity acquired a specialized packaging…
A: Solution: Present value of residual value = P200,000 * PV factor at 12% for 6th period = P200,000 *…
Q: half yearly payments of £74,000 in advance -Note the Interest rate inherent in the lease is 3%…
A: Lease Accounting Financial lease Accounting, recording transaction in the books of leasee
Q: On January 1, 2022, Durant Corporation agrees to lease equipment to Irving Corporation. The term of…
A: Year Lease Payment Discount Factor Present Value 1 113,913.00 1 113,913.00 2…
Q: Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make…
A: Introduction Operating leases require lease expenses to be recognized on a straight-line basis over…
Q: ABC Company decided to enter the leasing business. The entity acquired a specialized packaging…
A: Present value of residual value of the machine = residual value of the machine x present value of 1…
Q: a. Prepare the relevant journal entries in the first year of the lease. b. Prepare the relevant…
A: Leasee Magnitude Ltd Term of Lease 3 years Use full life of Plant 7 years Lease Rental…
Q: Samson Company leases a building and land. The lease term is 6 years and the annual fixed payments…
A:
Q: Sheridan, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual…
A: The amount of leased assets = Annual lease payment*PV Annuity Due (8%, 4 periods)
Q: Ace Leasing acquires equipment and leases it to customers under long-term direct financing leases.…
A:
Q: ABC Company leased equipment to Best Corporation under a lease agreement that qualifies as a direct…
A: Formulas: Depreciation = ( cost of asset - salvage value)/ estimated life
Q: Grygiel Company leases a nonspecialized machine with a fair value of $40,000 to Baker Company. The…
A: Residual value is the leftover value of an asset after the end of its useful life.
Q: Kit Company leased equipment at an annual rental of P45,000 payable in advance for five years.…
A:
Q: Metlock Company leases a building and land. The lease term is 8 years and the annual fixed payments…
A: A lease grants the right to use other individuals' software, fixed asset, real estate, etc for a…
Q: p. has entered into a lease arrangement with Foodie Ltd. in which it has agreed to lease an item of…
A: Explanation of Concept A lease is defined as the contract between two parties for use of an asset.…
Q: Kingbird Company leases a building and land. The lease term is 7 years and the annual fixed payments…
A: Lease can be operating lease or Finance lease. Finance lease is a lease in which lessee has the…
Q: Pepper, Inc. agrees to lease equipment from the Blue Corporation for 10 years at $25,000 at the end…
A: Calculation of total present value . Working Notes:-
Q: Grygiel Company leases a nonspecialized machine with a fair 20 value of $50,000 to Baker Company.…
A: A lease is a contract in which one party agrees to rent an asset—in this case, real estate—from…
Q: Crane Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be…
A: The correct option is option d.
Q: Sunland Corporation is a lessee with a finance lease. The asset is recorded at $1020000
A: Answer: $111,250
Q: Lukawitz Industries leased equipment to Seminole Corporation for a four-year period, at which time…
A:
Q: Big Corporation enters into a 6-year lease of equipment with Tiny Company, receiving annual lease…
A: A lease is a contract that spells out the terms under which one party agrees to rent an asset—in…
Q: n January 1, 2022, Tiktok Company leased a heavy equipment to be used in its construction business.…
A: Requirement : In the question it asked to calculate the cost of right to use assets with the given…
Q: Scuppermong Farms signed an agreement on January 1, Year 1 to lease a cultivator from Tyrrell…
A: This question is related to the lease. A Lease can be defined as an agreement that is binding and…
Wilcox Ltd finance company purchases a machine for $160,000 at the request of Upland Manufacturing Ltd, which then leases it to Upland for $60,000 per annum for three years. The payments are to be made at the commencement of each year including the first year of the lease period. Wilcox Ltd incurs costs of $1,500 to establish the lease. The lease is non-cancellable and classified as a finance lease by the lessor. The interest rate implicit in the lease is 10%. There is no guaranteed or unguaranteed residual value at the end of the lease period.
Required:
Prepare the
Step by step
Solved in 3 steps with 3 images
- Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?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.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.
- 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).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
- 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.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 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.
- 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.)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.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.