Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 15, Problem 15.9E
(a)
To determine
Finance lease
Finance lease is a parallel type of direct financing whereby the owner (lessor) purchases the equipment to lease it and received the interest revenue over the period of lease for equipment, apart from the recognition of profit from sale of equipment.
To determine: the amountof annual leasepayments as calculated by lessor.
(b)
To determine
the amount of lease would record as right-of-use asset and lease liability.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Q9
he objective of IAS 17 Leases is to prescribe the appropriate accounting treatment and required disclosures in relation to leases. Which TWO of the following situations would normally lead to a lease being classified as a finance lease?
(i) The lease transfers ownership of the asset to the lessee by the end of the lease term.
(ii) The lease term is for approximately half of the economic life of the asset.
(iii) The lease assets are of a specialised nature such that only the lessee can use them without major modifications being made.
(iv) At the inception of the lease, the present value of the minimum lease payments is 60% of what the leased asset would cost to purchase.
Select one:
a. (ii) and (iii)
b. (iii) and (iv)
c. (i) and (ii)
d. (i) and (iii
t34
Initial direct costs incurred by the lessor in an operating lease should beA. expensed in the year of incurrence by including them in the cost of goods sold or by treating them as a sellingexpense.B. deferred and recognized as reduction in the interest rate implicit in the lease.C. capitalized as part of asset cost and depreciated over the lease term.D. deferred and carried on the statement of financial position until the end of the lease term.
Part 1: New Lease Accounting – IFRS 16 Leases Effect Analysis.
What are the top three industries most affected by IFRS 16 as measured by the present value of future payments for off-balance-sheet leases to total assets? Which leased assets propel them to the top three? Also, discuss the extent that smaller firms would be affected by IFRS 16.
Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement.
Variable lease payments linked to future use or sales
Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option.
Discuss the effects of the new accounting on the following items and ratios of lessees. Provide reason(s) behind all effects.
EBITDA, operating profit, and profit before tax
Operating cash flow, financing cash flow, and total cash flow
Debt to equity, current ratio, and return on total assets
Chapter 15 Solutions
Intermediate Accounting, 10 Ed
Ch. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - Prob. 15.4QCh. 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. 15.21QCh. 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. 15.26QCh. 15 - Prob. 15.27QCh. 15 - Prob. 15.28QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.30QCh. 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 - Lease classification LO151 Each of the four...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Prob. 15.37ECh. 15 - Prob. 15.38ECh. 15 - Prob. 15.39ECh. 15 - Lessors initial direct costs; operating and...Ch. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.6DMPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 2CCTC
Knowledge Booster
Similar questions
- 36..new recheck Which of the following would be included in the Lease Receivable account?I. Guaranteed residual value.II. Unguaranteed residual value.III. Executory costsIV. Rental payments. II, III, and IV. I and III only. I and II only. I, II, and IV.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_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_forward
- CH 21 POST-CLASS - SU21 Question 1 Ivanhoe Corporation enters into a 5-year lease of equipment on December 31, 2019, which requires 5 annual payments of $37,800 each, beginning December 31, 2019. In addition, Ivanhoe guarantees the lessor a residual value of $20,500 at the end of the lease. However, Ivanhoe believes it is probable that the expected residual value at the end of the lease term will be $10,250. The equipment has a useful life of 5 years.Prepare Ivanhoes' December 31, 2019, journal entries assuming the implicit rate of the lease is 10% and this is known to Ivanhoe. (Credit account titles are automatically indented when 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.)Click here to view factor tables. Date Account Titles and Explanation Debit Credit December 31, 2019 (To…arrow_forwardPart 1: New Lease Accounting – using IFRS 16 Leases Effect Analysis. Which payments are to be included in the measurement of lease assets and lease liabilities? Also, discuss the pros and cons of excluding the following payments from the measurement. - Variable lease payments linked to future use or sales - Optional payments relating to lease-extension option when a lessee is not reasonably certain to exercise the option.arrow_forwardPart 1: New Lease Accounting –IFRS 16 Leases Effect Analysis. Identify differences between IFRS 16 and U.S. GAAP new lease accounting (ASC Topic 842). Based on these differences, discuss which one (IFRS or U.S. GAAP) you favor and why? Discuss three main features of the two transition methods for lessees under ASC 842 and IFRS 16. Which transition method would investors likely prefer? Why? Which transition method may be preferred by companies? Why?arrow_forward
- PROBLEM 3C Assume that ADB Leasing Corp. and WXY Inc. sign a lease contract effective on January 1, 2019where ADB Leasing leases to WXY Inc. a bulldozer. The terms and provisions of the lease contract andother pertinent date are as follows:• The term of the lease is five years. The lease agreement is non-cancelable, requiring equal rentalpayments of P20,711.11 at the beginning of each year (annuity-due basis).• The bulldozer has a fair value at the commencement of the lease of P100,000, an estimatedeconomic life of five years, and a guaranteed residual value of P5,000. (WXY expects thatit is probable that the expected value of the residual value at the end of the lease will be greaterthan the guaranteed amount of P5,000.)• The lease contains no renewal options. The bulldozer reverts to ADB Leasing at the terminationof the lease.• WXY's incremental borrowing rate is 5 percent per year.• WXY depreciates its equipment on a straight-line basis.• ADB Leasing sets the annual rental rate to…arrow_forward34. A lessee with a finance lease containing a bargain purchase option should depreciate the leased asset over the life of the asset or the term of the lease, whichever is shorter. life of the asset or the term of the lease, whichever is longer. asset's remaining economic life. term of the lease.arrow_forward42.. new recheck A lessor with a sales-type lease involving an unguaranteed residual value at the end of the lease term will report sales revenue in the period of inception of the lease at which of the following amounts? The sales price less the present value of the residual value. The lease payments plus the unguaranteed residual value. The present value of the lease payments plus the present value of the unguaranteed residual value. The cost of the asset to the lessor, less the present value of any unguaranteed residual value.arrow_forward
- 12 QUESTION 8 A capital lease is considered a ____ agreement. a. negotiable b. noncancelable c. maintenance d. short-term. QUESTION 9 The sale and leaseback is advantageous to the lessee because the lessee _____. a. is never required to pay taxes and insurance b. receives cash from the sale of the asset c. cannot continue using the asset d. receives title to property at the termination of the lease. QUESTION 10 A primary difference between leveraged leases and other financial leases is that ____. a. unleveraged leases are usually tax-motivated b. the lessor in a leveraged lease is invariably the manufacturer of the leased asset c. leveraged leases involve the use of nonrecourse debt d. leveraged leases must be capitalized and shown on the lessee's balance sheetarrow_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_forward33 Gross investment in the lease is equal toA. the minimum lease payments receivable by the lessor.B. the unguaranteed residual value accruing to the lessor.C. both the minimum lease payments receivable by the lessor under a finance lease and the unguaranteed residual value accruing to the lessor.D. neither the minimum lease payments receivable by the lessor under a finance lease nor the unguaranteed residual value accruing to the lessor.arrow_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