![Intermediate Accounting, Student Value Edition (2nd Edition)](https://www.bartleby.com/isbn_cover_images/9780134732145/9780134732145_largeCoverImage.gif)
Concept explainers
Finance Lease, Lessee, Lessor, Unguaranteed Residual Value. Sun Bank recently leased machinery to Claude Company. The 8-year lease contract requires rental payments of $100,000 due on January 1 of each year, The lease is classified as a finance lease for the lessee and a sales-type lease for the lessor. Claude knows Sun Bank's 6% implicit rate. There is a $30,000 residual value. Compute the net investment in the lease for Sun Bank and the lease liability and right-of-use asset for the Claude Company assuming that the residual value is not guaranteed by the lessee or by a third party.
![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 18 Solutions
Intermediate Accounting, Student Value Edition (2nd Edition)
Additional Business Textbook Solutions
Principles of Accounting Volume 2
Financial Accounting: Information for Decisions
Financial Accounting, Student Value Edition (5th Edition)
FINANCIAL ACCT.FUND.(LOOSELEAF)
Advanced Financial Accounting
- The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 18,500 Year 2: $ 23,500 Year 3: $ 28,500 Year 4: $ 33,500 An appropriate discount rate is 7 percentage, yielding a present value of $86,637. b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1? (Round your answer to the nearest dollar amount.) b-5. If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year 1? (Round your answer to…arrow_forward3. the information below relates to a sales type lease in which lease payments are made semiannually at the beginning of each period Lease term Lessor's desired rate of return Lesse's incremental borrowing rate Current fair market value of leased asset 5 years 12% per year 10% per year $600,000 Based on the information above, calculate the amount of the semi-annual payment as determined by the lessor.arrow_forwardPharoah Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Pharoah. The six-year lease requires payment of $162000 at the beginning of each year, including $24200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Pharoah should record the leased asset at $660171. $808819. $776108. $687995.arrow_forward
- Zhang Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $53,750 over a five-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 6%. The asset being leased cost Mann $190,000 to produce. 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. Determine the price at which the lessor is "selling" the asset (present value of the lease payments). 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? Required 1 Required 2 Determine the price at which the lessor is "selling" the asset (present value of the lease payments). Note: Round your intermediate and final answers to the nearest whole dollar. PV factors based on Table or Calculator function: Lease…arrow_forwardCallaway Golf Co. leases telecommunications equipment from Photon Company. Assume the following data for equipment leased from Photon Company. The lease term is 5 years and requires equal rental payments of $31,000 at the beginning of each year. The equipment has a fair value at the commencement of the lease of $150,000, an estimated useful life of 8 years, and a guaranteed residual value at the end of the lease of $15,500. Photon set the annual rental to earn a rate of return of 6%, and this fact is known to Callaway. The lease does not transfer title or contain a bargain purchase option, and is not a specialized asset. How should Callaway classify this lease?arrow_forwardZhang Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 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%. The asset being leased cost Mann $230,000 to produce. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) Required: 1. Determine the price at which the lessor is "selling" the asset (present-value of the lease payments). 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the price at which the lessor is "selling" the asset (present value of the lease payments). Note: Round your intermediate and final answers to the nearest whole…arrow_forward
- A lease agreement that qualifies as a finance lease calls for annual lease payments of $10,000 over a five-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%. The lessor's fiscal year is the calendar year. The lessor manufactured this asset at a cost of $30,000. Required: a. Determine the price at which the lessor is "selling" the asset (present value of the lease payments). b. Create a partial amortization table through the second payment on January 1, Year 2. c. What would be the increase in earnings that the lessor 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) Complete this question by entering your answers in the tabs below. Required A Required B Determine the price at which the lessor is "selling" the asset (present value of the…arrow_forwardZhang Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $49,677 over a five-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%. The asset being leased cost Mann $180,000 to produce. 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. Determine the price at which the lessor is "selling" the asset (present value of the lease payments). 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the price at which the lessor is "selling" the asset (present value of the lease payments). Note: Round your intermediate and final answers to the nearest whole…arrow_forwardA lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 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 7%. The lessor's fiscal year is the calendar year. The lessor manufactured this asset at a cost of $144,000. Required: a. Determine the price at which the lessor is "selling" the asset (present value of the lease payments). b. Create a partial amortization table through the second payment on January 1, Year 2. c. What would be the increase in earnings that the lessor 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) Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the price at which the lessor is "selling" the asset (present value…arrow_forward
- On January 1, 2024, Lesco Leasing leased equipment to Quality Services under a finance/sales-type lease designed to earn Lesco a 14% rate of return for providing long-term financing. The lease agreement specified: 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. Ten annual payments of $59,000 beginning January 1, 2024, the beginning of the lease and each December 31 thereafter through 2032. b. The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to Lesco was $321,104. c. The lease qualifies as a finance lease/sales-type lease. d. A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $5,000 per year are specified, beginning January 1, 2024. Lesco was to pay this cost as incurred, but lease payments reflect this expenditure. Also included in the $59,000 payments is an insurance premium…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%. The lessor's fiscal year is the calendar year. The lessor manufactured this asset at a cost of $100,000. Required: Determine the price at which the lessor is "selling" the asset (present value of the lease payments). Create a partial amortization table through the second payment on January 1, Year 2. What would be the increase in earnings that the lessor 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 S 1, PV of $1, FVA of $1, PVA of S1, FVAD of $1 and PVAD of $1)arrow_forwardEach of the four independent situations below describes a sales-type lease in which annual lease payments of $14.000 are payable at the beginning of each year. Each is a finance lease for the lessee. Lease term (years) Asset's useful life (years) Lessor's implicit rate (known by lessee) Residual value: Guaranteed by lessee Unguaranteed A. The lessor's: 1. Total lease payments 2. Gross investment in the lease 3. Net investment in the lease B. The lessee's: 4. Total lease payments 5. Right-of-use asset 6. Lease liability $ 42,000✔✔ 42,000 41,084 42,000✔ 41,084 X 41,084 X 2 45.070 X 47.600 45.070 X 1 $2,000✔ 41,084 X 41.084 X 3 3 12% $0 $0 Answer is complete but not entirely correct. Situation 3 none Purchase option: After (years) Exercise price Reasonably certain? 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) Determine the following amounts at the beginning of the lease: Note: Round your final answers to nearest…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337788281/9781337788281_smallCoverImage.jpg)