Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 15, Problem 15.34E
Lessor’s initial direct costs; operating lease
• LO15–4, LO15–7
The following relate to an operating lease agreement:
- a. The lease term is 3 years, beginning January 1, 2018.
- b. The leased asset cost the lessor $800,000 and had a useful life of eight years with no residual value. The lessor uses straight-line
depreciation for its depreciable assets. - c. Annual lease payments at the beginning of each year were $137,000.
- d. Incremental costs of negotiating and consummating the completed lease transaction incurred by the lessor were $2,400.
Required:
Prepare the appropriate entries for the lessor from the beginning of the lease through the end of the lease team.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
EP#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…
31....///
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…
Exercise 15-33 (Algo) Nonlease payments; lessor and lessee [LO15-2, 15-7]
On January 1, 2024, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified the following:
Ten annual payments of $61,000 beginning January 1, 2024, the beginning of the lease and each December 31 thereafter through 2032.
The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $346,464.
The lease qualifies as a finance lease/sales-type lease.
A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $8,000 per year are specified, beginning January 1, 2024. NRC was to pay this cost as incurred, but lease payments reflect this expenditure.
A partial amortization schedule, appropriate for both the lessee and lessor, follows:
Note: Use…
Chapter 15 Solutions
Intermediate Accounting
Ch. 15 - Prob. 15.1QCh. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - A lessee should classify a lease transaction as a...Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - In accounting for a finance lease/sales-type...Ch. 15 - What is selling profit on a sales-type lease? How...Ch. 15 - At the beginning of an operating lease, the lessee...Ch. 15 - At the beginning of an operating lease, the lessor...Ch. 15 - In accounting for an operating lease, how are the...
Ch. 15 - Briefly describe the conceptual basis for asset...Ch. 15 - In a financing lease, front loading of lease...Ch. 15 - The discount rate influences virtually every...Ch. 15 - A lease that has a lease term (including any...Ch. 15 - A lease might specify that lease payments may be...Ch. 15 - What is a purchase option? How does it affect...Ch. 15 - A six-year lease can be renewed for two additional...Ch. 15 - Culinary Creations leased kitchen equipment under...Ch. 15 - What situations cause us to remeasure a lease...Ch. 15 - Prob. 15.20QCh. 15 - Compare the way a purchase option that is...Ch. 15 - What nonlease costs might be included as part of...Ch. 15 - The lessors initial direct costs often are...Ch. 15 - When are initial direct costs recognized in an...Ch. 15 - Prob. 15.25QCh. 15 - Prob. 15.26QCh. 15 - Prob. 15.27QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.29QCh. 15 - Lease classification LO151 (Note: Brief Exercises...Ch. 15 - Lease classification LO151, LO152 Corinth Co....Ch. 15 - Lessee and lessor; calculate interest;...Ch. 15 - Finance lease; lessee; balance sheet effects ...Ch. 15 - Finance lease; lessee; income statement effects ...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Prob. 15.7BECh. 15 - Operating lease LO154 (Note: Brief Exercises 8...Ch. 15 - Operating lease LO154 At the beginning of its...Ch. 15 - Short-term lease LO155 King Cones leased ice...Ch. 15 - Uncertain lease term LO156 Java Hut leased a...Ch. 15 - Uncertain lease payments LO156 On January 1,...Ch. 15 - Purchase option; lessor; sales-type lease LO152,...Ch. 15 - Residual value; sales-type lease LO152, LO153,...Ch. 15 - Guarantee d residual value LO156 On January 1,...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Nonlease payments LO152, LO157 On January 1,...Ch. 15 - Lease classification LO151 Each of the four...Ch. 15 - Finance lease; calculate lease payments LO152...Ch. 15 - Finance lease; lessee; balance sheet and income...Ch. 15 - Prob. 15.4ECh. 15 - Sales-type lease; lessor; balance sheet and income...Ch. 15 - Finance lease; lessee LO152 (Note: Exercises 6,...Ch. 15 - Sales-type lease with no selling profit; lessor ...Ch. 15 - Sales-type lease with selling profit; lessor;...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Lessee and lessor; sales-type lease with selling...Ch. 15 - Lessee; finance lease; effect on financial...Ch. 15 - Lessee; operating lease; effect on financial...Ch. 15 - Lessor; operating lease; effect on financial...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Lessee; operating lease LO154 Grichuk Power...Ch. 15 - Lessee a nd lessor; operating lease LO154 On...Ch. 15 - Short-term lease LO155 Chance Enterprises leased...Ch. 15 - Lessee; renewal option LO152, LO156 Natick...Ch. 15 - Variable lease payments LO152, LO156 On January...Ch. 15 - Lessee; variable lease payments LO152, LO156 On...Ch. 15 - Lessee; variable lease payments LO152, LO156 On...Ch. 15 - Lessee; renewal options LO152, LO156 On January...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lessor; sales-type lease; residual value effect on...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Lessee; lessee guaranteed residual value LO152,...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Finance lease; purchase options; lessee LO152,...Ch. 15 - Purchase option; lessor; sales-type lease; no...Ch. 15 - Nonlease payments; lessor and lessee LO152, LO157...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lessors initial direct costs; operating lease ...Ch. 15 - Prob. 15.35ECh. 15 - Prob. 15.36ECh. 15 - Prob. 15.37ECh. 15 - Sale-leaseback Appendix 15 To raise operating...Ch. 15 - Sale-leaseback; operating lease Appendix 15 To...Ch. 15 - Prob. 15.1PCh. 15 - Finance lease LO152 At the beginning of 2018, VHF...Ch. 15 - Lease amortization schedule LO152 On January 1,...Ch. 15 - Finance /sales-type lease; lessee and lessor ...Ch. 15 - Lessee; operating lease; advance payment;...Ch. 15 - Operating lease; scheduled rent increases LO154...Ch. 15 - Lease amortization schedule LO152, LO156 On...Ch. 15 - Reassessment of lease term LO152, LO154, LO156 On...Ch. 15 - Lease concepts; sales-type leases; guaranteed and...Ch. 15 - Prob. 15.10PCh. 15 - Change in lease term; operating lease; lessor ...Ch. 15 - Lessee; renewal option LO152, LO156 High Time...Ch. 15 - Lessee and lessor; lessee guaranteed residual...Ch. 15 - Lessee and lessor; lessor; sales-type lease with...Ch. 15 - Nonlease payments; lessor and lessee LO152, LO157...Ch. 15 - Lessors initial direct costs; operating and...Ch. 15 - Nonlease costs; lessor and lessee LO152, LO157...Ch. 15 - Lessee-guaranteed residual value; unguaranteed...Ch. 15 - Initial direct costs; sales-type lease LO152,...Ch. 15 - Initial dire ct costs; sales-type lease with a...Ch. 15 - Guaranteed residual value; sales-type lease ...Ch. 15 - Unguaranteed residual value; nonlease payments;...Ch. 15 - Purchase option reasonably certain to be exercised...Ch. 15 - Lessee and lessor; lessee guaranteed residual...Ch. 15 - Prob. 15.25PCh. 15 - Prob. 15.26PCh. 15 - Modification of a lease LO152, LO153, LO156 On...Ch. 15 - Finance lease; lessee; financial statement effects...Ch. 15 - Prob. 15.29PCh. 15 - Sales-type lease; lessor; financial statement...Ch. 15 - Prob. 15.31PCh. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Analysis Case 154 Lease concepts; Walmart LO151...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.7BYPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 1CCIFRS
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 31.. 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_forward16... Partially correct answer icon Your answer is partially correct. Grouper Corporation leases equipment from Falls Company on January 1, 2020. The lease agreement does not transfer ownership, contain a bargain purchase option, and is not a specialized asset. It covers 3 years of the equipment’s 8-year useful life, and the present value of the lease payments is less than 90% of the fair value of the asset leased.Prepare Grouper’s journal entries on January 1, 2020, and December 31, 2020. Assume the annual lease payment is $30,000 at the beginning of each year, and Grouper’s incremental borrowing rate is 8%, which is the same as the lessor’s implicit rate. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,265. Record journal entries in the order presented in the problem.)Click here to…arrow_forwardP17–4 LEASE VERSUS PURCHASE JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 21% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: LEASE Annual end-of-year lease payments of $25,200 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $5,000 at termination of the lease. PURCHASE The equipment costs $60,000 and can be financed with a 14% loan requiring annual end-of-year payments of $25,844 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) JLB will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the JLB, who plans…arrow_forward
- Question 5 LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment.Prepare LBJ’s journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ’s incremental borrowing rate is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the…arrow_forward4...continue Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sunland desires a 9% rate of return on its investments. Coronado’s incremental borrowing rate is 10%, and the lessor’s implicit rate is…arrow_forward4...continue Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sunland desires a 9% rate of return on its investments. Coronado’s incremental borrowing rate is 10%, and the lessor’s implicit rate is…arrow_forward
- 4... continues Sunland Leasing Company agrees to lease equipment to Coronado Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $489,000, and the fair value of the asset on January 1, 2020, is $699,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $60,000. Coronado estimates that the expected residual value at the end of the lease term will be 60,000. Coronado amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Sunland desires a 9% rate of return on its investments. Coronado’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.…arrow_forwardKk.194. Jeff owns a new company that is considering either leasing or buying a $100,000 piece of equipment. The lease-buy analysis indicates that buying is better than leasing in Jeff's situation. What factors other than those considered in the lease-buy analysis might lead Jeff to lease rather than buy, in contradiction to the analysis results?arrow_forwardExercise 15-27 (Algo) Lessee; lessee guaranteed residual value [LO15-2, 15-6] On January 1, 2021, Maywood Hydraulics leased drilling equipment from Aqua Leasing for a four-year period ending December 31, 2024, at which time possession of the leased asset will revert back to Aqua. The equipment cost Aqua $429,029 and has an expected economic life of five years. Aqua and Maywood expect the residual value at December 31, 2024, to be $65,000. Negotiations led to Maywood guaranteeing a $92,500 residual value. Equal payments under the lease are $130,000 and are due on December 31 of each year with the first payment being made on December 31, 2021. Maywood is aware that Aqua used a 6% interest rate when calculating lease payments. (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. & 2. Prepare the appropriate entries for Maywood on January 1, 2021 and December 31, 2021, related to the lease. (If no entry…arrow_forward
- 36 con.... Teal Leasing Company agrees to lease equipment to Flint Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 6 years with no renewal option, and the machinery has an estimated economic life of 8 years. 2. The cost of the machinery is $314,000, and the fair value of the asset on January 1, 2020, is $406,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $36,300. Flint estimates that the expected residual value at the end of the lease term will be $36,300. Flint amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Teal desires a 6% rate of return on its investments. Flint’s incremental borrowing rate is 8%, and the lessor’s implicit rate is unknown. (Assume the…arrow_forwardWITH 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_forwardWITH SOLUTION/COMPUTATION. 51. On December 30, 2019, Haber Co. leased a new machine from Gregg Corp. The following data relate to the lease transaction at the inception of the lease:Lease term 10 yearsAnnual rental payable at end of each lease year P100,000Useful life of machine 12 yearsImplicit interest rate 10 %The lease has no renewal option, and the possession of the machine reverts to Gregg when the lease terminates. At the inception of the lease, Heber should record a lease liability of a. 0 b. 615,000 c. 630,000 d. 676,000arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
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:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Accounting for Finance and Operating Leases | U.S. GAAP CPA Exams; Author: Maxwell CPA Review;https://www.youtube.com/watch?v=iMSaxzIqH9s;License: Standard Youtube License