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
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 18, Problem 18.8BE
To determine
To prepare: The
Given information:
Fair value of asset is $25,977
Lease rent due at the beginning of the year is $4,000.
Implicit rate of interest is 11.2%
Present value of lease receivable is $25,977.
Lease term is 10 years
Initial direct cost is $23,000.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning of the current year, the construction equipment was leased on a contract specifying that ownership of thereon will transfer to the lessee at the end of the lease period. The annual lease payments do not include executory costs. Original cost of the construction equipment is P9,000,000. Lease payments payable at beginning of each year is P2,000,000. Estimated residual value is P1,000,000. Implicit interest rate is 12%, 10-year lease term. Present value of an annuity due of 1 at 12% for 10 periods is 6.33 and PV of 1 at 12% for 10 periods is 0.32.
1. What amount should be reported as gross profit on sale?
2. How much is the interest income for the current year?
Ericson Company leased an asset to another entity. The o
COst
The lease provided for a transfer of title to the lessee at the
of the asset was P7,994,000. Terms of the lease specify
and four year-end rental payments. The lease qualified as a
four-year life for the lease, an annual interest rate of 15%,
direct financing lease...
The lease provided for a transfer of title to the lessee
end of the lease term.
After the fourth year, the residual value was estimated
P1,000,000.
at
The PV of 1 at 15% for 4 periods is .572, and the PV of a.
ordinary annuity of 1 at 15% for 4 periods is 2.855.
What is the annual rental payment?
a. 2,000,000
b. 3,000,350
c. 2,800,000
d. 2,599,650
Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning of the current year, the construction equipment was leased on a contract specifying that ownership of thereon will transfer to the lessee at the end of the lease period. The annual lease payments do not include executory costs. Original cost of the construction equipment is P9,000,000. Lease payments payable at beginning of each year is P2,000,000. Estimated residual value is P1,000,000. Implicit interest rate is 12%, 10-year lease term. Present value of an annuity due of 1 at 12% for 10 periods is 6.33 and PV of 1 at 12% for 10 periods is 0.32.
How much is the total financial revenue over the lease term?
What amount should be reported as gross profit on sale?
How much is the interest income for the current year?
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
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Pina Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $104,218 Residual value of equipment at end of lease term, guaranteed by the lessee $51,000 Expected residual value of equipment at end of lease term $46,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $540,000 Lessor’s implicit rate 9 % Lessee’s incremental borrowing rate 9 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment. (c) (c) Incorrect answer icon Your answer is incorrect. Suppose Pina received a lease incentive of $5,000 from Faldo Leasing to enter the lease. How would the initial measurement of the lease liability and right-of-use…arrow_forwardhe following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Ivanhoe Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $99,118 Residual value of equipment at end of lease term, guaranteed by the lessee $53,000 Expected residual value of equipment at end of lease term $48,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $554,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. (a) Your answer is partially correct. Try again. Prepare an amortization schedule that would be suitable for the lessee for the lease term.…arrow_forwardThe information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions(iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan Company for the year ending December 31, 2020. (v) Discuss the nature of this lease to Simmonds Leasing Company.arrow_forward
- Lessee Company leased a machine with an estimated useful life of 15 years from Lessor Company. The 10-year non- cancellable lease provides that the title to the machine transfers to the Lessee Company at the end of the lease term. The leased asset should be depreciated by Lessee Company overarrow_forwardThe information below relates to a leasing arrangement between Simmonds Leasing Company and Telsan Company, a lessee. Inception date January 1, 2020 Lease term 6 years Annual lease payment due at the beginning ofeach year, beginning with January 1, 2020 $150,000 Fair value of asset at January 1, 2020 $760,000 Economic life of leased equipment 7 years Residual value of equipment at end of lease term,guaranteed by the lessee $65,500 Lessor’s implicit rate 10% Lessee’s incremental borrowing rate 12% January 1, 2020 The asset will revert to the lessor at the end of the lease term. The lessee has guaranteed the lessor a residual value of $65,500. The lessee uses the straight-line depreciation method for all equipment. Instructions(i) What is the lease liability for Telsan Company? ii) Record the lease on Telsan Company’s books at the date of inception. (iii)Record the first year’s depreciation on Telsan Company’s books. (iv) Record interest expense and lease liability for Telsan Company for…arrow_forward2. The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the…arrow_forward
- 2. The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period…arrow_forwardThornhill Equipment (lessor) leased a construction crane to Vanier Construction (lessee) on January 1, 2023. The following information relates to the leased asset and the lease agreement. (Click the icon to view the data.) Both companies use the straight-line depreciation method for cranes, and they both have December 31 year-end dates. Required Requirement a. Evaluate how the lessor (Thornhill Equipment) should account for the lease transaction. Start by determining the present value of the lease payments (PVLP). Then calculate the percentage of the PVLP compared to the fair value of the leased asset. (Use a financial calculator for all present value computations. Enter all currency values as positive amounts rounded to the nearest whole dollar. Round the percentage to the nearest whole percent.) PVLP Fair value of asset PVLP as % of fair value % Leased asset and lease agreement - Cost of crane to lessor 100,000 Thornhill's normal selling price for crane $ 146,913 Useful life…arrow_forwardPrepare the journal entries that the lessee should make to record the following transactions. The lessee makes a lease payment of $80,000 to the lessor in an operating lease transaction. Veatech Company leases a new building from Joel Construction, Inc. The present value of the lease payments is $700,000.The lease qualifies as a capital lease.arrow_forward
- On January 1, 20x1, ABC Co. enters into a 4-year lease of office equipment. Annual rental payable at the end of each year is P12,000. As inducement in entering into the lease, the lessor makes the first 3 months of the lease as rent-free. ABC Co. opts to use the practical expedient allowed under PFRS 16 for leases of low value assets. Requirement: Provide the journal entries.arrow_forward1. 2. The lessee makes a lease payment of $75,200 to the lessor for equipment in an operating lease transaction. Wildhorse Company leases equipment from Noble Construction Inc. The present value of the lease payments is $658,000. The lease qualifies as a capital lease.. Prepare the journal entries that the lessee should make to record the above transactions assuming the entities report under ASPE. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) No. Account Titles 1. Debit Creditarrow_forwardOn 1 January 2012, an IFl entered into an ljarah Muntahia Bittamleek contract with a customer. The asset was purchased lease term, the asset shal be transferred as a gitt. The terms of the contract are Annual rentals $110,000 Term of lease= 4 years Residual value of asset at end= $3,000 Cost of the asset= $380,000 What shall be the accounting entries in the books of IF for the years 2012 to 2015?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Accounting for Finance and Operating Leases | U.S. GAAP CPA Exams; Author: Maxwell CPA Review;https://www.youtube.com/watch?v=iMSaxzIqH9s;License: Standard Youtube License