Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.
Journal: Journal is the method of recording monetary business transactions in chronological order. It records the debit and credit aspects of each transaction to abide by the double-entry system.
Rules of Debit and Credit:
Following rules are followed for debiting and crediting different accounts while they occur in business transactions:
- Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
- Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.
To Determine: The pretax amount related to lease reported by Company W in the statement of cash flow for the year ended December 31, 2018.
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Chapter 21 Solutions
Intermediate Accounting
- E6.18 (LO 4) (Least Costly Payoff) Assume that Sonic Foundry Corporation has a contractual debt outstanding. Sonic has available two means of settlement. It can either make immediate payment of $2,600,000, or it can make annual payments of $300,000 for 15 years, each payment due on the last day of the year. Instructions Which method of payment do you recommend, assuming an expected effective interest rate of 8% during the future period?arrow_forward1. (LO3) Installment Sale Zachary Davis owns several apartment buildings in Los Angeles and has an offer from a business associate, Ace Arnold, to purchase one of the buildings on October 31, 2021. Ace does not have the money to purchase the apartment building outright and offers to pay Zachary over a five-year period beginning next year. Zachary is leery, but he contacts his attorney to draw up a contract with the following information: • Sales price $500,000 • Payments of $100,000 each, to be made on January 1 of 2022, 2023, 2024, 2025, and 2026 • Interest rate 6%, semiannual compounding beginning January 1, 2022. Zachary had paid $385,000 for the building and its adjusted basis as of October 31, 2021 is $351,400. He would like you to prepare his 2021 tax return and believes he should not have to pay any tax on the sale until 2026 when he receives the final payment. Prepare a response to Zachary and the file.arrow_forwardProblem 5-20 Annuities (LO3) A famous quarterback just signed a $11.2 million contract providing $2.8 million a year for 4 years. A less famous receiver signed a $9.4 million 4-year contract providing $3 million now and $2.3 million a year for 4 years. The interest rate is 8%. a. What is the PV of the quarterback's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.) b. What is the PV of the receiver's contract? (Do not round intermediate calculations. Enter your answer in millions rounded to 2 decimal places.)arrow_forward
- 31..../// Partially correct answer icon Your answer is partially correct. Marin, Inc. leases a piece of equipment to Bucks Company on January 1, 2020. The contract stipulates a lease term of 5 years, with equal annual rental payments of $7,367 at the end of each year. Ownership does not transfer at the end of the lease term, there is no bargain purchase option, and the asset is not of a specialized nature. The asset has a fair value of $40,000, a book value of $38,000, and a useful life of 8 years. At the end of the lease term, Marin expects the residual value of the asset to be $12,000, and this amount is guaranteed by a third party. Marin wants to earn a 6% return on the lease and collectibility of the lease payments is probable. Assume that the lease receivable is $40,000, deferred gross profit is $2,000, and the rate of return to amortize the net lease receivable to zero is 7.64%.Prepare Marin’ journal entry at the end of the first year of the lease to record the receipt of…arrow_forward4. How much is the gross investment that should be initially recognized as lease receivable? ₱ 4,000,000 ₱ 4,140,056 ₱ 3,840,150 ₱ 3,000,000arrow_forwardKk.194. Jeff owns a new company that is considering either leasing or buying a $100,000 piece of equipment. The lease-buy analysis indicates that buying is better than leasing in Jeff's situation. What factors other than those considered in the lease-buy analysis might lead Jeff to lease rather than buy, in contradiction to the analysis results?arrow_forward
- EP#5 On January 1, 2021, Yancey, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2021 is $6,000,000; however, the book value to Holt is $4,950,000.(c) The building has an estimated economic life of 10 years, with no residual value. Yancey depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Yancey’s incremental borrowing rate is 11% per year. Holt Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yancey, Inc.(f) The yearly…arrow_forwardCA10.3 (LO 2) (Capitalization of Interest) Vania Magazines started construction of a warehouse building for its own use at an estimated cost of $5,000,000 on January 1, 2019, and completed the building on December 31, 2019. During the construction period, Vania has the following debt obligations outstanding. Construction loan—12% interest, payable semiannually, issued December 31, 2018 $2,000,000 Short-term loan—10% interest, payable monthly, and principal payable at maturity, on May 30, 2020 1,400,000 Long-term loan—11% interest, payable on January 1 of each year; principal payable on January 1, 2022 1,000,000 Total cost amounted to $5,200,000, and the weighted average of accumulated expenditures was $3,500,000. Jane Esplanade, the president of the company, has been shown the costs associated with this construction project and capitalized on the balance sheet. She is bothered by the “avoidable interest” included in the cost. She argues that, first, all the…arrow_forward6.11 (LO 4 ) (Evaluation of Purchase Options) Rizzo Excavating Inc. is purchasing a bulldozer. The equipment has a price of $100,000. The manufacturer has offered a payment plan that would allow Rizzo to make 10 equal annual payments of $16,274.53, with the first payment due one year after the purchase. Instructions a. How much total interest will Rizzo pay on this payment plan? b. Rizzo could borrow $100,000 from its bank to finance the purchase at an annual rate of 9%. Should Rizzo borrow from the bank or use the manufacturer's payment plan to pay for the equipment?arrow_forward
- WITH SOLUTION/COMPUTATION 54.Robbins, Inc., leased a machine from Ready Leasing Co. The lase requires 10 annual payments of P10,000 beginning immediately. The lease specifies an interest rate of 12% and a purchase option of P10,000 at the end of the tenth year, even though the machine’s estimated value on that date is P20,000. It is reasonably certain that Robbins will exercise the purchase option. Robbins’ incremental borrowing rate is 14%. What amount should Robbins record the right-of-use asset at the beginning of the lease term? 62,160 64,860 66,500 69,720arrow_forwardQuestion 5 LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Oriole, Inc. for 3 years. The lease calls for annual lease payments of $16,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment.Prepare LBJ’s journal entries on January 1, 2020 (commencement of the operating lease), and on December 31, 2020. Assume the implicit rate used by the lessor is unknown, and LBJ’s incremental borrowing rate is 7%. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places, e.g. 5,275. Record journal entries in the order presented in the…arrow_forwardProblem 12 On January 1, GEN enters into a contract with LORD for the sale of a high-end security scanner for P630,000. The contract includes a put option the obliges GEN to repurchase the scanner machine from LORD for P567,000 on or before December 31. The market value is expected to be P495,000 on December 31. LORD pays GEN P630,000 on January 1. The transaction should be accounted for as a: A. Sale C. No sale/lease B. Lease D. Cannot be determined Problem 13 Noreen INC a truck dealer, sells a truck on January 1, 2019, to Mendoza for P3,000,000. Noreen INC agrees to repurchase the truck on December 31, 2020 for P3,630,000. 1. Assuming a 10% is imputed in the agreement, how much is the liability of Tom Co on January 1, 2019? A. 1,500,000 C. 3,000,000 B. 1,815,000 D. 3,630,000 2. Using the information above, what is the interest expense for 2019? A. None C. 330,000 B. 300,000 D. 630,000 3. How much should NOREEN INC record interest and retirement of its liability to MENDOZA INC…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning