![INTERMEDIATE ACCOUNTING(LL)-W/CONNECT](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781260216141/9781260216141_smallCoverImage.gif)
Concept explainers
Analysis Case 15–4
Lease concepts; Walmart
• LO15–1 through LO15–4
Real World Financials
Walmart Stores, Inc. is the world’s largest retailer. A large portion of the premises that the company occupies are leased. Its financial statements and disclosure notes revealed the following information:
Balance Sheet
($ in millions)
2016 | 2015 | |
Assets | ||
Property: | ||
Property under capital lease | $11,096 | $5,239 |
Less: Accumulated amortization | (4,751) | (2,864) |
Liabilities | ||
Current liabilities: | ||
Obligations under finance leases due within one year | 551 | 287 |
Long-term debt: | ||
Long-term obligations under finance leases | 5,816 | 2,606 |
Required:
1. Discuss some possible reasons why Walmart leases rather than purchases most of its premises.
2. The net asset “property under finance lease” has a 2016 balance of $6,345 million ($11,096 − 4,751). Liabilities for finance leases total $6,367 ($551 + 5,816). Why do the asset and liability amounts differ?
3. Prepare a 2016 summary entry to record Walmart’s lease payments, which were $600 million.
4. What is the approximate average interest rate on Walmart’s finance leases? (Hint: See Req. 3)
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 15 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/CONNECT
- Exercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1, FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Situation 2 B 4 Lease term (years) Lessor's rate of return Fair value of lease asset 5 10% 8 11% 6 9% 9 12% $ 57,000 Lessor's cost of lease asset $ 57,000 $ 357,000 $ 357,000 $ 82,000 $ 52,000 $ 472,000 $ 472,000 Residual value: Estimated fair value 0 $ 57,000 $ 14,000 $ 29,000 Guaranteed fair value 0 $ 14,000 $ 34,000 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest…arrow_forwardA e Q LTE ll 70% 14:24 Vo) abc SAVE Text Pen Brush On January 1, 2012, Singhai Ltd. signed a three-year lease on a delivery truck. The lease requires annual payments of $29,103, which are due at the end of each year. Singhai's managers computed the present value of the lease payments as $75,000 using an effective interest rate of 8%. Singhai had to use capital lease accounting treatment for the truck. What was the total expense related to this lease during the fiscal year ended December 31, 2012? $31,000 $29,103 $25,000 $6,000 $0 NEXT > В I U !!! !!!arrow_forwardExercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: Estimated fair value Guaranteed fair value. Situation 1 Situation 2 Situation 3 Situation 4 Lease Payments $ 70,000 $ 70,000 4 10% Residual Value Guarantee 0 0 $ 2 7 11% $ 370,000 $ 370,000 PV of Lease Payments $ 70,000 0 Situation 70,000 $ $ GA 3 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations.…arrow_forward
- 46. 2:40 O C O 0.30 KB/s Problem 3 On January 1, 2020, YANIG Company entered into an 8-year noncancelable lease of machinery to SIKLAB. The machine had a cost of P 10,500,000. The lease is properly classified as direct financing lease. Equal annual rental payments under the lease are P 1,800,000 and are due on January 1 of each year starting January 1, 2020. The implicit interest rate of the lease is 12%. The contract includes a provision that SIKLAB will guarantee a P 1,200,000 residual value of the asset at the end of lease term. On January 1, 2020, YANIG paid an initial direct cost of P 200,000 in negotiating and securing the leasing arrangement. What is the unearned interest income at YANIG's December 31, 2020 statement of financial position? IIarrow_forwardExercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: Estimated fair value Guaranteed fair value Situation 1 Situation 2 Situation 3 Situation 4 1 Lease Payments 10% $ 53,000 $ 53,000 0 0 2 Situation 8 11% $ 353,000 $ 353,000 Residual Value PV of Lease Guarantee Payments $ 53,000 0 3 6 9% $ 78,000 $ 48,000 $ 10,000 $ 10,000 PV of Residual Value Guarantee 4 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and…arrow_forwardExercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Situation 1 2 3 4 Lease term (years) Lessor's rate of return Fair value of lease asset 5 10% 8 11% 6 9% 9 12% $ 57,000 $ 357,000 Lessor's cost of lease asset $ 57,000 $ 357,000 $ 82,000 $ 52,000 $ 472,000 $ 472,000 0 $ 57,000 $ 14,000 $ 29,000 e 0 $ 14,000 $ 34,000 Residual value: Estimated fair value Guaranteed fair value Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest…arrow_forward
- Exercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: Estimated fair value Guaranteed fair value Situation 1 Situation 2 Situation 3 Situation 4 Lease Payments 1 $ $ $ $ 6 10% $ 58,000 $ 58,000 0 10 10 5,000 0 0 2 Residual Value PV of Lease Guarantee Payments Situation $ 358,000 $ 358,000 9 11% $ 58,000 0 $ $ $ 3 $ 83,000 $ 53,000 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for…arrow_forwardExercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. 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) Situation 1 2 3 4 Lease term (years) Lessor's rate of return 6 10% 9 11% 7 9% 10 12% Fair value of lease asset $ 58,000 $ 358,000 $ 83,000 Lessor's cost of lease asset $ 58,000 $ 358,000 $ 53,000 $ 473,000 $ 473,000 Residual value: Estimated fair value 0 $ 58,000 $ 15,000 $ 30,000 Guaranteed fair value 0 0 $ 15,000 $ 35,000 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for each of the above situations. Note: Round your answers to the nearest…arrow_forwardExercise 15-24 (Algo) Calculation of annual lease payments; residual value [LO15-2, 15-6] Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the begin of each year. The lessee is aware of the lessor's implicit rate of return. 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) Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: Estimated fair value. Guaranteed fair value Situation 1 Situation 2 Situation 3 Situation 4 Lease Payments $ $ 13,907 2,404,814 1 $ $ $ 6 9% $ 68,000 $ 68,000 0 0 $ 0 0 2 Residual Value PV of Lease Guarantee Payments Situation $368,000 $368,000 9 10% $ 68,000 0 68,000 $ 339,161 $ $ 3 Required: a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record a right-of-use asset and a lease liability, for…arrow_forward
- Problem 15-30 (Algo) Sale-leaseback [LO Appendix 15] To raise operating funds, North American Courier Corporation sold its building on January 1, 2024, to an insurance company for $508,000 and immediately leased the building back. • The lease is for a 10-year period ending December 31, 2033, at which time ownership of the building will revert to North American Courier. • The building has a carrying amount of $430,000 (original cost $1,060,000). • The lease requires North American to make payments of $89,908 to the insurance company each December 31. · 0 The building had a total original useful life of 30 years with no residual value and is being depreciated on a straight-line basis. The lease has an implicit rate of 12%. 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 the appropriate entries for North American (a) on January 1, 2024, to record the transaction and (b) on December 31, 2024, to…arrow_forwardTB Problem 15-200 (Static) Amelia Company leased a warehouse from... Amelia Company leased a warehouse from Island Industries on July 1, 2024, in a finance lease. The present value of the lease payments discounted at 10% was $162,217. Ten annual lease payments of $24,000 are due each July 1, beginning July 1, 2024. Island had constructed the building recently for $132,000 and its retail fair value was $162,217. Required: Assuming that control of the warehouse building is transferred to Amelia Company at the beginning of the lease. Prepare the two journal entries to record the lease by Island on July 1, 2024. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. No 1 2 Date July 01, 2024 July 01, 2024 Lease receivable Cost of goods sold Building Cash Lease receivable Answer is not complete. General Journal 333 Debit 162,217✔ 24,000✔ Credit 30,217 X 132,000 ✓ 24,000arrow_forwardPROBLEM 38 Barcelona Company owns the following properties on December 31, 2020: a. Landintendedfor sale b. Building, in the process of construction forrentals c. Equipment for lease under operating lease -P1,000,000 - 3,000,000 500,000 - 2,500,000 - 2,800,000 - 1,200,000 d. Landheld for undetemined use e. Buildingintended for leasedout under finance lease f. Landheld for future factory site g. Buildinguse forrentals. A small part ofthe building is used as a satellite a dministrative office - 4,000,000 h. Hotelbuilding on which Barcelona Companyprovides monthly maintenance services - 3,500,000 Requirements: 1. How do you classify eachoftheitems mentioned above? 2. Compute the investment property on December 31, 2020.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
![Text book image](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)