Concept explainers
Lessee; variable lease payments
• LO15–2, LO15–6
On January 1, 2018, Taco King leased retail space from Fogelman Properties. The 10-year finance lease requires quarterly variable lease payments equal to 3% of Taco King’s sales revenue, with a quarterly sales minimum of $400,000. Payments at the beginning of each quarter are based on previous quarter sales. During the previous 5-year period, Taco King has generated quarterly sales of over $650,000. Fogelman’s interest rate, known by Taco King, was 4%.
Required:
1. Prepare the
2. Prepare the journal entries for Taco King at April 1, 2018. First quarter sales were $660,000. Amortization is recorded quarterly.
Want to see the full answer?
Check out a sample textbook solutionChapter 15 Solutions
INTERMEDIATE ACCT VOL.2>CUSTOM<
- WITH SOLUTION/COMPUTATION 56.On January 1, 2019, Harrow Co. as lessee signed a five year non-cancellable equipment lease with annual payments of P100,000 beginning December 31, 2018. The implicit interest rate is 10%. How much is the interest expense for the year ended December 31, 2018? 37,900 27,900 24,200 0arrow_forwardEP#5 On January 1, 2021, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2021 is $6,000,000; however, the book value to Holt is $4,950,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.(f) The yearly…arrow_forwardPROBLEM 10: LEASE MODIFICATION WITH EXTENSION of lease term Laze Company entered into a lease agreement for a stall space for its products on January 1, 2020. Some of the agreement in the lease contract are as follows: Annual rental payable at end of each year starting December 31, 2020 P350,000 Lease term 6 years Implicit interest rate in the lease 10% Laze Company proposed an amendment on the original lease contract on January 1, 2023, and was approved by the lessor. The amendment is to extend the lease term for another 2 years with the following additional features: Annual rental payable at end of each year starting December 31, 2023 P350,000 Implicit interest rate in the lease 11% REQUIRED:: Prepare table of amortization and journal entries for the entire lease term.arrow_forward
- WITH SOLUTION/COMPUTATION 55. On January 1, 2019, Babson, Inc., leased two automobiles for executive use. The lease requires Babson to make five annual payments of P13,000 beginning January 1, 2019. At the end of the lease term, Babson guarantees the residual value of the automobiles will total P10,000. The interest rate implicit in the lease is 9%. Babson’s recorded lease liability on initial recognition isa. 48, 620 b. 44,070 ` c. 35,620 d. 31,070arrow_forwardP45. Team, Inc. leased machinery with a fair value of P250,000 from Win Company on December 31, 2019. The contract is a six-year non-cancelable lease with an implicit rate of 10%. The lease requires an annual payment of P50,000 beginning December 31, 2019. Team, Inc.'s incremental borrowing rate is 12%. How much is the lease liability that Team, Inc. should report in its December 31, 2016 statement of financial position? (use four decimal places PV factor) A. P189,540 B. P200,000 C. P230,240 D. P239,540arrow_forward31..../// Partially correct answer icon Your answer is partially correct. Marin, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates a lease term of 5 years, with equal annual rental payments of $7,367 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $40,000, a book value of $38,000, and a useful life of 8 years. At the end of the lease term, Marin expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Marin wants to earn a 6% return on the lease and collectibility of the lease payments is probable. Assume that the lease receivable is $40,000, deferred gross profit is $2,000, and the rate of return to amortize the net lease receivable to zero is 7.64%.Prepare Marin’ journal entry at the end of the first year of the lease to record the receipt of…arrow_forward
- WITH SOLUTION/COMPUTATION 53. Neal Corp. entered into a nine-year lease on a warehouse on December 31, 2019. Lease payments of P52,000, which includes payments for non-lease component of P2,000 (at stand-alone selling price), are due annually, beginning on December 31, 2019, and every December 31 thereafter. Neal does not know the interest rate implicit in the lease; Neal’s incremental borrowing rate is 9%. What amount should Neal report as lease liability at December 31, 2019?a. 280,000 b. 291,200 c. 450,000 d. 468,000arrow_forwardXI. Direct Finance Lease – Lessee (PFRS 16)Problem 13. SMC Inc. leased a machine on January 1,2011 to SM Inc. with the following pertinentinformation:Annual rental payable at the beginning of each year P500,000Lease term 5 yearsUseful life of machine 6 yearsFair value of machine on January 1,2011 2,400,000Incremental borrowing rate of lessee 14%Implicit interest rate of lessor known to lessee 12%Bargain purchase option at the end of lease term 100,000Residual value of the machine 200,000Initial direct cost incurred by lessee 300,000Prepaid bonus paid by lessee 400,000Estimated restoration cost in which lessee has contractual obligation 1,000,000Required: Based on your audit, determine the following: ____________1. Initial amount recognized as right of use asset ____________2. Initial amount recognized as leased liability ____________3. Depreciation Expense in 2011 assuming cost model ____________4. Book value of right of use asset on December 31, 2012 ____________5. Current Lease…arrow_forwardMN.17. On 1 July 2020 Jane Ltd (lessor) leased equipment to Austin Ltd (Lessee). The equipment had a fair value of $369,824. This was also the present value of the lease payments .The lease agreement contained the following details: Lease term 5 years Economic life 6 years Annual rental payment in arrears commencing 30June 2021 $90,000 Residual Value at end of lease term $80,000 Residual Value guaranteed by lessee 80,ooo Interest rate implicit in lease 12% Lease is cancellable with permission of lessor, Jane Ltd .Lease is classified as a finance Lease by the Lessor . Required: (a)Prepare the Lease payment schedule for Austin Ltd, Lessee, for the first two years, for the year ended 30 June 2021 and for the year ended 30 June 2022.arrow_forward
- Exercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $18,000 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $106,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. 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) Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2) Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of…arrow_forwardWITH SOLUTION/COMPUTATION 57. On January 1, 2019, Blaugh Co. signed a long-term lease for an office building, the trems of the lease required Blaugh to pay P10,000 Annually, beginning December 30, 2019, and continuing each year for 30 years. On January 1, 2019, the present value of the lease payments is P112,500 at the 8% interest rate implicit in the lease. In Blaugh’s December 31, 2019, balance sheet, the lease liability should be 102,500 111,500 112,500 290,000arrow_forward31.. continue Marin, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates a lease term of 5 years, with equal annual rental payments of $7,367 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $40,000, a book value of $38,000, and a useful life of 8 years. At the end of the lease term, Marin expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Marin wants to earn a 6% return on the lease and collectibility of the lease payments is probable. Assume that the lease receivable is $40,000, deferred gross profit is $2,000, and the rate of return to amortize the net lease receivable to zero is 7.64%.Prepare Marin’ journal entry at the end of the first year of the lease to record the receipt of the first lease payment. (Credit account titles are automatically…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education