(1)
Sales-type lease
Finance lease is a parallel type of direct financing whereby the owner (lessor) purchases the equipment to lease it and received the interest revenue over the period of lease for equipment, apart from the recognition of profit from sale of equipment.
Purchase option reasonably certain to be exercised before lease term
If the purchase option is reasonably certain to be exercised before lease term, the lease term ends for accounting purpose. The lease payments includes only periodic cash payments stated in the lease agreement that occur preceding to the date a BPO becomes exercisable.
To Calculate: the amount of selling profit that MS Company would recognize in this sales type lease.
(2)
To Prepare: the appropriate entries for AG Company (Lessee) and MS Company (Lessor) on September 30, 2018.
(3)
To Prepare: amortization schedule for AG Company (Lessee) and MS Company (Lessor)
(4)
To Prepare: Appropriate entries for AG Company (Lessee) and MS Company (Lessor) as on December 31, 2018.
(5)
To Prepare: the appropriate entries for AG Company (Lessee) and MS Company (Lessor) as on September 29, 2020 (Assuming purchase option was exercise on that date)
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Intermediate Accounting
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