Principles of Managerial Finance Plus MyLab Finance with Pearson eText -- Access Card Package (15th Edition)
15th Edition
ISBN: 9780134830131
Author: Chad J. Zutter, Scott B. Smart
Publisher: PEARSON
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Chapter 17, Problem 17.7P
Capitalized lease values Given the lease payments, terms remaining until the leases expire, and discount rates shown in the following table, calculate the capitalized value of each lease, assuming that lease payments are made annually at the end of each year.
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What is the proper accounting treatment to record a variable lease payment indexed off the CPI?
Group of answer choices
Record the lease liability based on highest annual increase in the CPI for the past 10 years.
Calculate the lease liability based on the base payment and debit an additional expense in subsequent years based on the change in the CPI.
Calculate the lease liability based on expected payments over the life of the lease after considering increases in the CPI.
Capitalize and depreciate the increased payments based on CPI indexing.
A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%.
Required:
Determine the present value of the lease upon the lease's inception.
Create a partial amortization table through the second payment on January 1, Year 2.
If the lessee’s fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
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)
A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%.
Required:
Determine the present value of the lease upon the lease's inception.
Create a partial amortization table through the second payment on January 1, Year 2.
If the lessee’s fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
Chapter 17 Solutions
Principles of Managerial Finance Plus MyLab Finance with Pearson eText -- Access Card Package (15th Edition)
Ch. 17.1 - Prob. 17.1RQCh. 17.2 - What is leasing? Define, compare, and contrast...Ch. 17.2 - Describe the four basic steps involved in the...Ch. 17.2 - What type of lease must be treated as a...Ch. 17.2 - Prob. 17.5RQCh. 17.3 - What is the conversion feature? What is a...Ch. 17.3 - When the market price of the stock rises above the...Ch. 17.3 - Define the straight bond value, conversion (or...Ch. 17.4 - What are stock purchase warrants? What are the...Ch. 17.4 - Prob. 17.10RQ
Ch. 17.4 - Prob. 17.11RQCh. 17.5 - Prob. 17.12RQCh. 17.5 - How can the firm use currency options to hedge...Ch. 17 - N and M Corp, is considering leasing a new machine...Ch. 17 - During the past 2 years Meacham Industries issued...Ch. 17 - Newcomb Company has a bond outstanding with a...Ch. 17 - Crystal Cafes recently sold a 1,000-par-value, 1...Ch. 17 - A 6-month call option on 100 shares of SRS Corp...Ch. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Loan payments and interest Schuyler Company wishes...Ch. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Lease-versus-purchase decision Joanna Browne is...Ch. 17 - Capitalized lease values Given the lease payments,...Ch. 17 - Conversion price Calculate the conversion price...Ch. 17 - Conversion ratio What is the conversion ratio for...Ch. 17 - Conversion (or stock) value What is the conversion...Ch. 17 - Conversion (or stock) value Find the conversion...Ch. 17 - Straight bond value Calculate the straight bond...Ch. 17 - Determining values: Convertible bond Eastern Clock...Ch. 17 - Determining values: Convertible bond Craigs Cake...Ch. 17 - Prob. 17.18PCh. 17 - Prob. 17.23P
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- Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. Assume that Garvey is required to make payments on December 31 each year.arrow_forwardUse the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.arrow_forwardUse the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).arrow_forward
- In the third year of a 6-year finance lease, the portion of the lease payment applicable to the reduction of the lease liability should be: a. less than in the second year b. more than in the second year c. the same as in the fourth year d. more than in the fourth yeararrow_forwardLessor Accounting with Guaranteed Residual Value Use the information for Edom Company in E20-8, except that the residual value was guaranteed by Davis Company (the lessee). Required: 1. Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by Edom. 3. Prepare journal entries for Edom tor the years 2019 and 2020.arrow_forwardA lease agreement that qualifies as a finance lease calls for annual lease payments of $30,000 over a four-year lease term (also the asset’s useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 8%. Required: Determine the present value of the lease upon the lease's inception. Create a partial amortization table through the second payment on January 1, Year 2. If the lessee’s fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)? 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)arrow_forward
- A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-yearlease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. If the lessee’s fiscal year is the calendar year, what would be the amount of the lease liability thatthe lessee would report in its balance sheet at the end of the first year? What would be the interest payable?arrow_forwardA lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Complete the amortization schedule for the first two payments. If the lessee’s fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable?arrow_forwardlease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-yearlease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. Theinterest rate is 5%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of$125,000. What would be the amounts related to the lease that the lessor would report in its income statement forthe year ended December 31 (ignore taxes)?arrow_forward
- A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. If the lessee’s fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the year ended December 31(ignore taxes)?arrow_forwardA lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of $125,000. What would be the increase in earnings that the lessor would report in its income statement for the year ended December 31(ignore taxes)?arrow_forwardA lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a eight-year lease term (also the asset’s useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 4%. Required: Complete the amortization schedule for the first two payments. If the lessee’s fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable?arrow_forward
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