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
Videos
Textbook Question
Chapter 15, Problem 15.5BYP
Communication Case 15–5
Where’s the gain?
Appendix
General Tools is seeking ways to maintain and improve cash balances. As company controller, you have proposed the sale and leaseback of much of the company’s equipment. As seller-lessee, General Tools would retain the right to essentially all of the remaining use of the equipment. The term of the lease would be six years.
You previously convinced your CFO of the
Required:
Write a memo to your CFO. Include discussion of each of these points:
1. How the transaction should be accounted for.
2. Why General Tools will not get the gain the CFO had counted on.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
12. 12 Multiple Choices. A company pledged its entire accounts receivable amounting to P2,500,000 to a financing institution to a loan approved for P2,000,000. The term of the loan requires the company to pay the principal when it becomes mature 4 years from now and also to pay 12% annual interest every end of the year. Should the company has made no collateral for the loan, interest rate could have been 18%. Assuming the transaction occurred on June 30, 20A, what shall be the proper accounting treatment for the pledged accounts?
a.disclose the loan to notes to financial statements and derecognize the pledged accounts
b.derecognize the pledged accounts
c.disclose it to the notes to financial statements
d.recognized the loan and derecognize the pledged accounts
e.do nothing
question 18
Nirvana Chip Designs has finished designing its next generation of chips, the XJ5000 series and is getting ready to start production. As the analyst on the project, you are required to prepare pro forma free cash flows. Which of the following are relevant to your analysis?
a. Design cost for the chips
b. Potential lost sales of the XJ4000 chips
c. Proportional cost of the corporate jet lease
d. Start-up investment in raw materials
e. Upgrades to the chip fabrication facility required if the chip is produced
f. Market research done to guide the development of the new chip
g. Market value of land and buildings where new chip will be produced
1. Design cost for the chips. (Select the best choice below.)
A. This is relevant because it is an investment in working capital.
B. This is relevant as it represents cannibalization of existing sales.
C. This is irrelevant because it is a sunk cost.
D. This is irrelevant as it represents existing overhead.…
Problem 12
On January 1, GEN enters into a contract with LORD for the sale of a high-end security scanner for P630,000. The contract includes a put option the obliges GEN to repurchase the scanner machine from LORD for P567,000 on or before December 31. The market value is expected to be P495,000 on December 31. LORD pays GEN P630,000 on January 1. The transaction should be accounted for as a:
A. Sale C. No sale/lease
B. Lease D. Cannot be determined
Problem 13
Noreen INC a truck dealer, sells a truck on January 1, 2019, to Mendoza for P3,000,000. Noreen INC agrees to repurchase the truck on December 31, 2020 for P3,630,000.
1. Assuming a 10% is imputed in the agreement, how much is the liability of Tom Co on January 1, 2019?
A. 1,500,000 C. 3,000,000
B. 1,815,000 D. 3,630,000
2. Using the information above, what is the interest expense for 2019?
A. None C. 330,000
B. 300,000 D. 630,000
3. How much should NOREEN INC record interest and retirement of its liability to MENDOZA
INC…
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
- P18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forwardProblem 9-2 Relevant Cash Flows [LO 1] Winnebagel Corporation currently sells 29,900 motor homes per year at $82,500 each and 8,900 luxury motor coaches per year at $124,500 each. The company wants to introduce a new portable camper to fill out its product line; it hopes to sell 24,900 of these campers per year at $28,500 each. An independent consultant has determined that if the company introduces the new campers, it should boost the sales of its existing motor homes by 4,500 units per year and reduce the sales of its motor coaches by 1,040 units per year. What is the amount to use as the annual sales figure when evaluating this project?arrow_forwardQUESTION 5.3 Europcar, a leading South African car rental company, wants to determine whether to purchase or lease a fleet of Toyota Yaris motorcars for rental purposes. The company is in the 28% tax bracket and its after-tax cost of debt is currently 7%. Lease contract The lease contract determines that the company could lease the fleet of Toyota Quest cars for three years at a lease rental of R295 000 payable at the end of each year. All maintenance costs would be paid by the lessor. Insurance and other costs would be borne by the lessee. Purchase option The purchase option allows the company to purchase the fleet of Toyota Quest cars for R900 000 and to finance it entirely with an 11% loan requiring annual end-of-year payment of R368 249 for three years. The fleet would be depreciated by R300 000 per year. Europcar would pay R5 000 per year for a service contract covering all maintenance costs and also bear insurance and other costs. Europcar’s financial manager asked Tim Joshua for…arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Accounting (Text Only)AccountingISBN:9781285743615Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
Financial & Managerial AccountingAccountingISBN:9781285866307Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage Learning
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting (Text Only)
Accounting
ISBN:9781285743615
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Financial & Managerial Accounting
Accounting
ISBN:9781285866307
Author:Carl Warren, James M. Reeve, Jonathan Duchac
Publisher:Cengage Learning
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Property, Plant and Equipment (PP&E) - Introduction to PPE; Author: Gleim Accounting;https://www.youtube.com/watch?v=e_Hx-e-h9M4;License: Standard Youtube License