Concept explainers
Operating lease
• LO15–4
At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a seven-year operating lease agreement. The contract calls for quarterly rent payments of $25,000 each. The office building was acquired by Lakeside at a cost of $2 million and was expected to have a useful life of 25 years with no residual value. What will be the effect of the lease on Lakeside’s earnings for the first year (ignore taxes)?
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LooseLeaf Intermediate Accounting w/ Annual Report; Connect Access Card
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- Problem 2 ABC Company signed a ten-year noncancelable lease agreement to lease a storage building to a lessee under a sales type lease at the start of this year. At the conclusion of each year, the agreement demanded equal rental payments. The building's fair market value is P7,530,000. The building's carrying amount, on the other hand, is P6,420,000. The structure has a twelve-year projected economic life and no residual value. The title to the building will be transferred to the lessee at the end of the lease. The yearly rental was established by ABC to ensure a 12% return on investment. The lessee is aware of the lessor's implicit rate. The entire yearly lease payment includes P300,000 in executory costs for property taxes. What is the minimum annual lease payment? b. What is the total annual lease payment?arrow_forwardBE 15-9 Operating lease; financial statement effects LO15-4 At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a seven-year operating lease agreement. The contract calls for quarterly rent payments of $25,000 each. The office building was acquired by Lakeside at a cost of $2 million and was expected to have a useful life of 25 years with no residual value. What will be the effect of the lease on Lakeside's earnings for the first year (ignore taxes)?arrow_forwardExercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2021, Nath-Langstrom Services, Inc., 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 $14,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $99,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (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. 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 the…arrow_forward
- Problem 3 On January 1, 2022, Grab Services, Inc. leased delivery trucks from Henri Industries. The lease agreement for the P3,000,000 (fair value and present value of the lease payments) delivery trucks specified four equal payments at the end of each year. The useful life of the delivery trucks was expected to be 8 years with no residual value. The implicit rate on the lease was 10%. 27. Determine the annual lease payment to be made by Grab Services?arrow_forward25 Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $19 million. This noncancelable lease had the following terms: • Lease payments: $3,287,947 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. • Lease term: 5 years (10 semiannual payments). • No residual value; no purchase option. • Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 9% semiannually. • Fair value of the computers on January 1, 2024: $23 million. . What is the outstanding balance of the lease liability in Lone Star's balance sheet on June 30, 2024? Note: Round your answer to the nearest whole dollar. Multiple Choice $17,698,200arrow_forwardBrief Exercise 15-3 (Algo) Lessee and lessor; calculate interest; finance/sales-type lease [LO15-2] A finance lease agreement calls for quarterly lease payments of $5,302 over a 15-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $188,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a partial amortization table up to the October 1 payment. Note: Enter all amounts as positive values. Round your answers to the nearest whole dollar. Date July 1 July 1 October 1 Lease Payment Effective Interest Decrease in Outstanding balance balancearrow_forward
- Problem 3 On January 1, 2020, Berto Company leased a machinery with an estimated useful life of 8 years. The contract is a six-year noncancelable lease with a 10% implicit interest rate. PV of an annuity due of 1 at 10% for six periods 4.7908 PV of 1 at 10% for six periods 0.5645 The lease contains neither a transfer of title to the lessee nor a purchase option. The lease requires annual payments of P500,000 beginning January 1, 2020. The entity had a residual value guarantee of P400,000 when the machinery is returned to the lessor upon the lease expiration. Required: 1. Prepare a table of amortization of the lease liability and interest expense. 2. Prepare journal entries for 2020 and 2021. 3. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume the fair value of the asset is P450,000. 4. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume the fair value of the asset is P300,000.arrow_forwardProblem 1 Whistler Inc. signed a 6 year non-cancelable lease at the beginning of the year. The leased equipment has a 9 year economic life. The fair value of the leased equipment is $29,000. Annual lease payments due at the beginning of each year are $5,200. There is no bargain purchase option, and the leased asset reverts to the lessor at the end of the lease term. The implicit rate of interest on the lease (known by the lessee) is 6%. Collection of all lease payments is reasonably assured. Part A. What is the classification of this lease from the perspective of the lessee? Part B. What is the classification of this lease from the perspective of the lessor?arrow_forwardProblem 15-27 (Static) Finance lease; lessee; financial statement effects [LO15-2, 15-8] Werner Chemical, Incorporated, leased a protein analyzer on September 30, 2024. 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 on September 30, 2024. Werner's incremental borrowing rate is 12%. Amortization is recorded on a straight-line basis at the end of each fiscal year. The useful life of the equipment is five years. 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. Determine the present value of the lease payments on September 30, 2024. 2. What pretax amounts related to the lease would Werner report in its balance sheet on December 31, 2024? 3. What pretax amounts related to the lease would Werner report in its income statement for the year ended December 31, 2024? 4. What pretax…arrow_forward
- Problem 4 On January 1, 2021, Twice Company entered into a lease agreement with the following: Floor space Annual rental payable at the end of each year Implicit rate in the lease 1,500 square meters 200,000 12% 12 years 6.1944 Lease term Present value of an ordinary annuity at 12% for 12 periods On January 1, 2024, the lessee and the lessor agreed to amend the original terms of the lease with the following information: Additional floor space Increase in rental payable at the end of each year Implicit rate in lease Present value of an ordinary annuity of 1 at 10% for 9 periods 2,000 square meters 300,000 10% 5.759 1. What amount should be reported as lease liability on January 1, 20217 2. What amount should be reported as additional lease liability on January 1, 2024? 3. What amount should be reported as total interest expense for 20247arrow_forwardProblem 1 At the beginning of 2022, EVS Industries acquired a machine with fair value of P6,074,700 by signing a 4-year lease, which is the expected useful life of the machine passing. The lease is payable in four equal annual payments of P2 million at the end of each year. The implicit rate in the lease is 12% 22. What pretax amounts related to the lease would EVS report in its income statement for the year ended December 31, 2022?arrow_forwardProblem 2 ZTech Company sells audio systems. It leases to Marina sands Company on January 1, 20x4 an audio equipment with carrying value of P 9,000,000 under the following terms: Guaranteed residual value of P 2,000,000 at the end of the lease terms of 5 years. Periodic payment every January 1 and July 1 of P 1,328,622 starts on January 1, 20x4; Lessor’s annual implicit rate, which is known by Marina Sands is 10. Ztech incurs commission and other costs related to the lease amounting to P 10,000. Required: How much total profit should Ztech recognize for the year ended December 31, 20x4? How much interest expense shall Marina Sands recognize for the year ended December 31, 20x4? What amount shall Marina Sands report for the equipment at December 31, 20x5? What amount of interest revenue should Ztech report for the year ended December 31, 20x5? What amount of financial asset shall Ztech report at December 31, 20x4?arrow_forward
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning