INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
3rd Edition
ISBN: 9780136946601
Author: GORDON
Publisher: PEARSON
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Chapter 18, Problem 18.18BE
To determine
To prepare: The
Given information:
Fair value of asset is $4,900.
Total lease payment is $4,200.
Lease term is 42 month.
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On January 1, 20x1, DEMENTED Co. leased office furniture from INSANE, Inc. Payments on the lease will be made as follows:
YEAR RENTAL PAYMENT
Dec. 31, 20x1 200,000
Dec. 31, 20x2 240,000
Dec. 31, 20x3 260,000
700,000
• As an inducement to enter to the lease, INSANE granted DEMENTED the first six months of the lease rent-free.
• Additional rent (contingent rent) of 10% is to be paid for any excess of sales of DEMENTED over P2,000,000. DEMENTED'S sales for 20x1, 20x2, and 20x3 are P1,800,000, P2,000,000, and P3,000,000, respectively.
• DEMENTED Co. opts to use the recognition exemption for leases of low value asset.
Requirement: Provide all the journal entries in the books of DEMENTED (Lessee).
3. Lessee Capital Lease; Lessor
Residual Value - Guaranteed
-
Instructions:
Direct Financing Lease;
On January 1, 2010, Velde Company (lessee) entered into a 4
year, noncancellable contract to lease a computer from
Exceptional Computer Company (lessor). Annual rentals of
$16,228 are to be paid each January 1, Velde will assume
responsibility for all normal ownership costs, and at the end of
the lease period the computer will be returned back to
Exceptional Computer Company. The cost of the computer to
Exceptional Computer Company was $60,000 and it had an
estimated useful life of four years and a guaranteed residual
value of $5,000. Velde has an incremental borrowing rate of
12%, but has knowledge that Exceptional Computer Company
used a rate 10% in setting annual rentals. Collection of the
rentals is reasonably predictable and there are no important
uncertainties regarding future unreimbursable costs to be
incurred by the lessor. PVIFAD(10%,4) - 3.48685; PVIF(10%,4)
- 0.68301
a. What…
Initial Direct Costs and Related Issues
On January 1, 2019, Amity Company leases a crane to Baltimore Company. The lease contains the following terms and provisions:
•
The lease is noncancelable and has a term of 10 years.
•
The lease does not contain a renewal or bargain purchase option.
•
The annual rentals are $3,870, payable at the beginning of each year.
•
Baltimore agrees to pay all executory costs directly to a third party.
•
The cost of the equipment to the lessor is $24,177.54. The fair value of the equipment is $25,700.
•
Amity incurs initial direct costs of $1,310.90.
•
The interest rate implicit in the lease is 12%.
•
Amity expects to collect all lease payments from Baltimore.
•
Amity estimates that the fair value at the end of the lease term will be $3,100 and that the economic life of the crane is 12 years. This value is not guaranteed by Baltimore.
Required:
1.
Next Level What are initial direct costs? Discuss the accounting treatment of…
Chapter 18 Solutions
INTERMEDIATE ACCOUNTING-MYLAB W/ETEXT
Ch. 18 - Does the lessee become the owner of the equipment...Ch. 18 - Prob. 18.2QCh. 18 - Prob. 18.3QCh. 18 - What are typical terms and provisions in a lease...Ch. 18 - How does a lease offer business and financial...Ch. 18 - Prob. 18.6QCh. 18 - How is the right-of-use asset measured?Ch. 18 - What components are included in a lease contract?Ch. 18 - How does a lessee separate lease and nonlease...Ch. 18 - How does a lessor separate lease and nonlease...
Ch. 18 - Does a lessee have an option not to separate lease...Ch. 18 - What are the criteria for a lessee to report a...Ch. 18 - Prob. 18.13QCh. 18 - Can the lessor account for a lease either as an...Ch. 18 - What is the difference in the lessees lease...Ch. 18 - How does a guaranteed residual value affect the...Ch. 18 - Prob. 18.17QCh. 18 - What discount rate does the lessee use to...Ch. 18 - Does the choice of discount rate (i.e., the lessee...Ch. 18 - Prob. 18.20QCh. 18 - Prob. 18.21QCh. 18 - Prob. 18.22QCh. 18 - How does a lessee measure the lease liability?Ch. 18 - What is the lessees short-term lease policy...Ch. 18 - Prob. 18.25QCh. 18 - What are the lessee s accounting and reporting...Ch. 18 - Prob. 18.27QCh. 18 - Prob. 18.28QCh. 18 - Prob. 18.29QCh. 18 - How does the lessor measure the net investment in...Ch. 18 - Prob. 18.31QCh. 18 - Prob. 18.32QCh. 18 - Prob. 18.33QCh. 18 - Baxter Brothers, Inc. enters into a four-year...Ch. 18 - Zhou Systems signed a 5-year lease at the...Ch. 18 - Insight Corporation leases equipment for 5 years...Ch. 18 - Lowe Leasing Company recently leased machinery to...Ch. 18 - Prob. 18.5MCCh. 18 - Prob. 18.6MCCh. 18 - Prob. 18.7MCCh. 18 - Bischoff Enterprises leases office space from...Ch. 18 - Identifying Lease and Nonlease Components. Deane...Ch. 18 - Prob. 18.2BECh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as a Finance or Operating Lease,...Ch. 18 - Prob. 18.7BECh. 18 - Prob. 18.8BECh. 18 - Prob. 18.9BECh. 18 - Classification of Lease, Lessor, IFRS. Repeat the...Ch. 18 - Prob. 18.11BECh. 18 - Finance Lease, Lessee, Lessor, Guaranteed Residual...Ch. 18 - Finance Lease, Lessee, Lessor, Unguaranteed...Ch. 18 - Composition of Lease Payments, Variable Payments....Ch. 18 - Composition of Lease Payments. Variable Payments....Ch. 18 - Determining the Implicit Rate In the Lease. Assume...Ch. 18 - Prob. 18.17BECh. 18 - Prob. 18.18BECh. 18 - Prob. 18.1ECh. 18 - Allocation of Total Payments to Lease and Nonlease...Ch. 18 - Operating Lease, Nonlease Components, Lessee....Ch. 18 - Operating Lease, Rate or Index, Effect of Variable...Ch. 18 - Prob. 18.5ECh. 18 - Prob. 18.6ECh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 18.9ECh. 18 - Prob. 18.10ECh. 18 - Prob. 18.11ECh. 18 - Prob. 18.12ECh. 18 - Prob. 18.13ECh. 18 - Finance Lease, Purchase Option, Lessee,...Ch. 18 - Prob. 18.15ECh. 18 - Prob. 18.16ECh. 18 - Prob. 18.17ECh. 18 - Operating Lease, Lessor. True Image Copier Company...Ch. 18 - Operating Lease, Lessee, Amortization Schedules,...Ch. 18 - Prob. 18.20ECh. 18 - Prob. 18.21ECh. 18 - Classification as Finance or Operating Lease....Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance, Sales-Type, or...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 18.8PCh. 18 - Prob. 18.9PCh. 18 - Prob. 18.10PCh. 18 - Prob. 18.11PCh. 18 - Direct Financing Lease, Deferred Selling Profit,...Ch. 18 - Cases Judgment Cases Judgment Case 1: Comparison...Ch. 18 - Judgment Case 2: Lease Classification On January...Ch. 18 - Prob. 1FSCCh. 18 - Prob. 2FSCCh. 18 - Surfing the Standards Case 1: Lease Contracts...Ch. 18 - Prob. 2SSCCh. 18 - Prob. 3SSCCh. 18 - Basis for Conclusions Case 1: Operating Lease...Ch. 18 - Prob. 2BCCCh. 18 - Basis for Conclusions Case 3: Lease Classification...
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