Various Lease Issues for Lessor and Lessee Benjamin Company has rented new equipment to Murrell Builders that cost Benjamin $48,000, and has a fair value of $50,000. This nonspecialized equipment has a life of 4 years and no residual value at the end of that time. The lease is noncancelable and is signed on January 1, 2019. Murrell assumes all normal risks and executory costs of ownership. The title to the property is transferred to Murrell at the end of the 4 years. The interest rate implicit in the lease is 14% return. The lessee’s incremental borrowing rate is also 14%. It is probable that all rental payments will be collected. Required: 1. Assuming the annual rentals are payable at the end of each year, complete the following: a. lessor computation of periodic rental receipts b. lessee computation of the present value of the lease payments c. a table summarizing lease and interest payments that would be suitable for both lessor and lessee 2.Assuming the annual rentals are payable at the start of each year, compute the same three items listed in Requirement 1. 3. Prepare the journal entries for the lessor and lessee for Requirement 2 throughout 2019. Use the straight-line depreciation method. 4. Indicate the asset and liability amounts that the lessor and lessee would report on their balance sheets at December 31, 2019, under Requirement 2, using the change in present value approach.

BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281
BuyFind

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

Solutions

Chapter
Section
Chapter 20, Problem 10P
Textbook Problem

Various Lease Issues for Lessor and Lessee Benjamin Company has rented new equipment to Murrell Builders that cost Benjamin $48,000, and has a fair value of $50,000. This nonspecialized equipment has a life of 4 years and no residual value at the end of that time. The lease is noncancelable and is signed on January 1, 2019. Murrell assumes all normal risks and executory costs of ownership. The title to the property is transferred to Murrell at the end of the 4 years. The interest rate implicit in the lease is 14% return. The lessee’s incremental borrowing rate is also 14%. It is probable that all rental payments will be collected.

Required:

  1. 1. Assuming the annual rentals are payable at the end of each year, complete the following:
    1. a. lessor computation of periodic rental receipts
    2. b. lessee computation of the present value of the lease payments
    3. c. a table summarizing lease and interest payments that would be suitable for both lessor and lessee
  2. 2.Assuming the annual rentals are payable at the start of each year, compute the same three items listed in Requirement 1.
  3. 3. Prepare the journal entries for the lessor and lessee for Requirement 2 throughout 2019. Use the straight-line depreciation method.
  4. 4. Indicate the asset and liability amounts that the lessor and lessee would report on their balance sheets at December 31, 2019, under Requirement 2, using the change in present value approach.

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Chapter 20 Solutions

Intermediate Accounting: Reporting And Analysis
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