Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a lair value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round your answers to the nearest dollar. Required: 1. Next Level If the interest rate implicit in the lease is 10%, compute the machine’s expected residual value. 2. Next Level If the residual value is guaranteed by Baker, how would each company classify the lease? 3. Next Level If the residual value is not guaranteed by Baker but is instead guaranteed by a third party, how would each company classify the lease?

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 20, Problem 11E
Textbook Problem

Guaranteed and Unguaranteed Residual Values Grygiel Company leases a nonspecialized machine with a lair value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round your answers to the nearest dollar.

Required:

  1. 1. Next Level If the interest rate implicit in the lease is 10%, compute the machine’s expected residual value.
  2. 2. Next Level If the residual value is guaranteed by Baker, how would each company classify the lease?
  3. 3. Next Level If the residual value is not guaranteed by Baker but is instead guaranteed by a third party, how would each company classify the lease?

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Chapter 20 Solutions

Intermediate Accounting: Reporting And Analysis
Ch. 20 - Describe the difference between how a lessee would...Ch. 20 - What must a lessee disclose for all leases whether...Ch. 20 - What is the basic difference between the...Ch. 20 - Why are compound interest concepts appropriate and...Ch. 20 - Describe briefly the accounting procedures...Ch. 20 - Describe the difference between how a lessor would...Ch. 20 - What disclosures are lessors required to make for...Ch. 20 - Which of the following should be included by the...Ch. 20 - East Company leased a new machine from North...Ch. 20 - For a lease that transfers ownership of the...Ch. 20 - Fox Company, a dealer in machinery and equipment,...Ch. 20 - Fox Company, a dealer in machinery and equipment,...Ch. 20 - In the third year of a 6-year finance lease, the...Ch. 20 - On January 2, 2019, Lafayette Machine Shops Inc....Ch. 20 - At its inception, the lease term of Lease G is 65%...Ch. 20 - Rent received in advance by the lessor for an...Ch. 20 - On August 1, 2019, Kern Company leased a machine...Ch. 20 - Next Level Keller Corporation (the lessee) entered...Ch. 20 - Use the information in RE20-1. Prepare the journal...Ch. 20 - Next Level Garvey Company (the lessee) entered...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Montevallo Corporation leased equipment from Folio...Ch. 20 - Use the information in RE20-6. However, assume...Ch. 20 - Use the following information to decide whether...Ch. 20 - Use the information in RE20-3. Prepare the journal...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Lessee Accounting with Payments Made at Beginning...Ch. 20 - Lessee Accounting Issues Sax Company signs a lease...Ch. 20 - Lessee Accounting for Finance Lease On January 1,...Ch. 20 - Comparisons of Operating and Sales-Type Leases On...Ch. 20 - Lessor Accounting Issues Ramsey Company leases...Ch. 20 - Lessor Accounting with Receipts at End of Year...Ch. 20 - Lessor Accounting with Unguaranteed Residual Value...Ch. 20 - Lessor Accounting with Guaranteed Residual Value...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Guaranteed and Unguaranteed Residual Values...Ch. 20 - Lessor Accounting Issues Rexon Company leases...Ch. 20 - Lessee and Lessor Accounting Issues Diego Leasing...Ch. 20 - Lessee and Lessor Accounting Issues The following...Ch. 20 - Lease Income and Expense Reuben Company retires a...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Determining Type of Lease and Subsequent...Ch. 20 - Accounting for Leases by Lessee and Lessor Scupper...Ch. 20 - Lessee Accounting Issues Timmer Company signs a...Ch. 20 - Sales-Type Lease with Guaranteed Residual Value...Ch. 20 - Sales-Type Lease with Unguaranteed Residual Value...Ch. 20 - Sales-Type Lease with Receipts at End of Year...Ch. 20 - Initial Direct Costs and Related Issues On January...Ch. 20 - Various Lease Issues for Lessor and Lessee Lessee...Ch. 20 - Various Lease Issues for Lessor and Lessee...Ch. 20 - Various Lease Issues Farrington Company leases a...Ch. 20 - Comprehensive Landlord Company and Tenant Company...Ch. 20 - Benefits of Leasing As of 2017, drivers in the...Ch. 20 - Identified Asset A customer enters into a 3-year...Ch. 20 - Substitution Rights RaleighTech enters into an...Ch. 20 - Types of Leases On January 1, Hazard Company, a...Ch. 20 - Initial Direct Costs Efland Company leases...Ch. 20 - Types of Leases and Related Issues Circuit Village...

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