Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
1st Edition
ISBN: 9780134047430
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 18, Problem 18.1BE
To determine
The classification of lease.
Given information:
Lease does not contain purchase option.
Lease period 8 years.
Economic value of asset is 10 years.
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(Lessee Entries with Residual Value) The following facts pertain to a noncancelable lease agreement between Faldo Leasing Company and Vance Company, a lessee.
Check the below image for facts.
The lessee assumes responsibility for all executory costs, which are expected to amount to $5,000 per year. The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $50,000. The lessee uses the straight-line depreciation method for all equipment.Instructions(a) Prepare an amortization schedule that would be suitable for the lessee for the lease term.(b) Prepare all of the journal entries for the lessee for 2017 and 2018 to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31 and reversing entries are used when appropriate.
The details of the equipment lease agreement that Taj Corp. (lessee) recently entered into with Stanger
Leasing (lessor) are:
Commencement date: January 1, 2019.
â– Term of lease: 12 months.
Payments: $1,000 per month first due at the commencement date.
Other: Title does not transfer and the lease does not include any renewal or purchase options.
Interest rate implicit in the lease: Lessee not able to readily determine.
Incremental borrowing rate: 9% per annum (0.75% per month).
Estimated useful life of equipment: 8 years.
Depreciation method: Straight-line.
Year end: December 31.
Assume that Taj Corp. does not elect to expense leases of a short-term nature.
Prepare the journal entry for January 31, 2019.
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year:Â
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Year 1:
$
18,500
Year 2:
$
23,500
Year 3:
$
28,500
Year 4:
$
33,500
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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?
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b-2. If the lease is a finance lease, what will be the initial value of the lease liability?
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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.)
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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.)
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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…
Chapter 18 Solutions
Intermediate Accounting - Myaccountinglab - Pearson Etext Access Card Student Value Edition
Ch. 18 - Does the lessee become the owner of the equipment...Ch. 18 - Prob. 18.2QCh. 18 - Prob. 18.3QCh. 18 - Prob. 18.4QCh. 18 - Prob. 18.5QCh. 18 - Prob. 18.6QCh. 18 - Prob. 18.7QCh. 18 - Prob. 18.8QCh. 18 - Prob. 18.9QCh. 18 - Prob. 18.10Q
Ch. 18 - Prob. 18.11QCh. 18 - Prob. 18.12QCh. 18 - Prob. 18.13QCh. 18 - Prob. 18.14QCh. 18 - Prob. 18.15QCh. 18 - Prob. 18.16QCh. 18 - Prob. 18.17QCh. 18 - Prob. 18.18QCh. 18 - Prob. 18.19QCh. 18 - Prob. 18.20QCh. 18 - Prob. 18.21QCh. 18 - Prob. 18.22QCh. 18 - Prob. 18.23QCh. 18 - Prob. 18.24QCh. 18 - Prob. 18.1MCCh. 18 - Prob. 18.2MCCh. 18 - Prob. 18.3MCCh. 18 - Prob. 18.4MCCh. 18 - Prob. 18.5MCCh. 18 - Prob. 18.6MCCh. 18 - Prob. 18.7MCCh. 18 - Prob. 18.8MCCh. 18 - Prob. 18.1BECh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 18.4BECh. 18 - Prob. 18.5BECh. 18 - Prob. 18.6BECh. 18 - Prob. 18.7BECh. 18 - Prob. 18.8BECh. 18 - Prob. 18.9BECh. 18 - Finance Lease, Lessee, Lessor, Guaranteed Residual...Ch. 18 - Prob. 18.1ECh. 18 - Prob. 18.2ECh. 18 - Prob. 18.3ECh. 18 - Prob. 18.4ECh. 18 - Prob. 18.5ECh. 18 - Prob. 18.6ECh. 18 - Prob. 18.7ECh. 18 - Prob. 18.8ECh. 18 - Prob. 18.9ECh. 18 - Prob. 18.10ECh. 18 - Prob. 18.11ECh. 18 - Prob. 18.12ECh. 18 - Prob. 18.13ECh. 18 - Prob. 18.4PCh. 18 - Prob. 18.5PCh. 18 - Prob. 18.1PCh. 18 - Prob. 18.2PCh. 18 - Prob. 18.3PCh. 18 - Prob. 18.6PCh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 2JCCh. 18 - Prob. 1FSACCh. 18 - Prob. 1SSCCh. 18 - Prob. 1BCC
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- The Harris Company is the lessee on a four-year lease with the following payments at the end of each year:    Year 1: $ 11,500 Year 2: $ 16,500 Year 3: $ 21,500 Year 4: $ 26,500  An appropriate discount rate is 7 percentage, yielding a present value of $62,927.a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset?   a-2. If the lease is an operating lease, what will be the initial value of the lease liability?   a-3. If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year 1?   a-4. If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)arrow_forwardBurns, Inc. (lessor) agreed to lease a delivery van to Wilmore Corp. (lessee). The lease was classified as a finance/sales-type lease, but the van will be turned back over to Burns at the end of six years. Which of the following is true regarding the proper treatment of the delivery van's estimated residual value? Multiple Choice In a lease that includes selling profit, the lessor will add the present value of the estimated residual value to sales revenue in the initial entry. U In establishing the initial lease payable, Wilmore will include the present value of the full estimated residual value, but only if it is guaranteed. Estimated residual values are ignored by both parties when initially recording a lease. In calculating the required lease payments, Burns will consider the estimated residual value regardless of whether it is guaranteed or unguaranteed by Wilmore.arrow_forwardThe details of the equipment lease agreement that Taj Corp. (lessee) recently entered into with Stanger Leasing (lessor) are: Commencement date: January 1, 2019. Term of lease: 12 months. Payments: $1,000 per month first due at the commencement date. Other: Title does not transfer and the lease does not include any renewal or purchase options. Interest rate implicit in the lease: Lessee not able to readily determine. Incremental borrowing rate: 9% per annum (0.75% per month). Estimated useful life of equipment: 8 years. Depreciation method: Straight-line. Year end: December 31. Assume that Taj Corp. does elect to expense leases of a short-term nature as a practical expedient. Prepare the journal entry for January 1, 2019. Indicate a debit as positive and a credit as negative. Type 0 for any blanks that do not apply.arrow_forward
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