Concept explainers
(1)
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’.
To determine: The effective interest rate the company used to determine the lease liability assuming that lease payments are made at the end of each fiscal year.
(2)
Present value of an annuity due:
For the present value of an annuity due, the same formula of an ordinary annuity is used expect the amount of immediate cash flow, which is added to the present value of the future periodic cash flows which are remaining.
To determine: The effective interest rate the company used to determine the lease liability assuming that lease payments are made at the beginning of each fiscal year.
Trending nowThis is a popular solution!
Chapter 5 Solutions
INTERMEDIATE ACCOUNTING
- (Leases) 6 Exercise 15-5 (Static) Sales-type lease; lessor; balance sheet and income statement effects [LO15-3] On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Bullders, Inc. The lease agreement calls for Georgia- Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $2.5 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) at June 30, 2021. 2. What amount related to the lease would Builders report in its balance sheet at December 31, 2021 (ignore taxes)? 3. What…arrow_forwardExercise 15-5 (Algo) Sales-type lease; lessor; balance sheet and income statement effects [LO15-3] On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from Builders, Incorporated The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $530,475 over a 4-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.1 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) on June 30, 2024. 2. What amount related to the lease would Builders report in its balance sheet on December 31, 2024 (ignore taxes)? 3. What line…arrow_forwardExercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2024, Nath-Langstrom Services, Incorporated, a computer software training firm, leased several computers under a two- year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. . The contract calls for four rent payments of $20,000 each, payable semiannually on June 30 and December 31 each year. • The computers were acquired by ComputerWorld at a cost of $110,000 and were expected to have a useful life of eight years with no residual value. . Both firms record amortization and depreciation semiannually. Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first…arrow_forward
- 2 points Exercise 15-5 (Algo) Sales-type lease; lessor; balance sheet and income statement effects [LO15-3] On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from Builders, Incorporated The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $512,709 over a 5-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 12.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.5 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) on June 30, 2024. 2. What amount related to the lease would Builders report in its balance sheet on December 31, 2024 (ignore taxes)? 3.…arrow_forwardExercise 15-4 (Static) Sales-type lease; lessor; balance sheet and income statement effects [LO15-2] On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Incorporated at a cost of $3 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. What amount related to the lease would IC report in its balance sheet on December 31, 2024 (ignore taxes)? 2. What amount related to the lease would IC report in its income statement for the year ended December 31, 2024 (ignore…arrow_forwardExercise 15-3 (Algo) Finance lease; lessee; balance sheet and income statement effects [LO15-2] On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $604,355 over a five-year lease term, payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value of the equipment is $4.90 million. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Determine the present value of the lease payments on June 30, 2024 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What amount related to the lease would Georgia-Atlantic report in…arrow_forward
- Exercise 15-17 (Algo) Lessee and lessor; operating lease [LO15-4] On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Leasing, which routinely finances equipment for other firms at an annual interest rate of 4%. The contract calls for four rent payments of $14,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $99,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the…arrow_forwardBAAB2033 - Financial Accounting & Reporting 2 Topic 5: MFRS16 Leases Example 1 Think High Enterprise (THE), which makes up its accounts to 31 December each year. THE signed a lease contract with a less or, FDH. The lease contract gives THE, the right to control the asset. The date of the contract is 1/1/x2. The following are some of the terms. THE is to pay RM40,000 immediately, with three further yearly installments of RM40,000 each, beginning on 1/1/x3. The agreed fair value of the asset is RM139,474 & the interest rate implicit in the lease is 10%. At the end of the lease period the title to the asset is transferred to the lessee. The expected economic life of the asset is five years & the residual value of the asset at the end of that time is zero. You are required to record the above in the books of the lessee for the years ended 31 December x2, х3, х4 and х5. SHOT ON MI 10Tarrow_forwardP17–4 LEASE VERSUS PURCHASE JLB Corporation is attempting to determine whether to lease or purchase research equipment. The firm is in the 21% tax bracket, and its after-tax cost of debt is currently 8%. The terms of the lease and of the purchase are as follows: LEASE Annual end-of-year lease payments of $25,200 are required over the three-year life of the lease. All maintenance costs will be paid by the lessor; insurance and other costs will be borne by the lessee. The lessee will exercise its option to purchase the asset for $5,000 at termination of the lease. PURCHASE The equipment costs $60,000 and can be financed with a 14% loan requiring annual end-of-year payments of $25,844 for three years. JLB will depreciate the equipment under MACRS using a three-year recovery period. (See Table 4.2 for the applicable depreciation percentages.) JLB will pay $1,800 per year for a service contract that covers all maintenance costs; insurance and other costs will be borne by the JLB, who plans…arrow_forward
- IFRS 16 Leases - Shark Ltd. rents a property downtown in order to use it as its new „flaghip-store“. • The commencement date of the lease contract is January 1 st, 2020. • The contract period is 10 years (until December 31st 2029; no extension or termination options). • The lease payments agreed under the rental agreement amount to € 100,000 per year and are due on January 1 st for each year of the lease term (up-front annual lease payments). • The implicit interest rate assumed in the lease is unknown to Shark Ltd. • Shark Ltd.‘s incremental borrowing rate is 4.75 %. • In addition, Shark Ltd. has to pay an up-front compensation payment (€ 15,000) to the previous lessee of the store in order to move in at the desired date. Required: • Determine the relevant lease payments • Calculate the right-of-use asset and the lease liability at initial recognition • Present the subsequent measurement of both the right-of-use asset and the lease liabilityarrow_forward25 Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024. The manufacturing cost of the computers was $19 million. This noncancelable lease had the following terms: • Lease payments: $3,287,947 semiannually; first payment on January 1, 2024; remaining payments on June 30 and December 31 each year through June 30, 2028. • Lease term: 5 years (10 semiannual payments). • No residual value; no purchase option. • Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 9% semiannually. • Fair value of the computers on January 1, 2024: $23 million. . What is the outstanding balance of the lease liability in Lone Star's balance sheet on June 30, 2024? Note: Round your answer to the nearest whole dollar. Multiple Choice $17,698,200arrow_forwardProblem 15-3 (Algo) Lease amortization schedule [LO15-2] On January 1, 2024, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic Portions of the Equipment Leasing's lease amortization schedule appear below: January 1 2024 2025 2026 2027 2028 2029 2030 2041 2042 2043 Payments $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 Effective Interest $ 22,167 $ 21,734 $ 21,257 $ 20,733 $ 20,156 $ 19,522 1. Lease liability 2. Right-of-use asset 3. Lease term 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense Decrease in Balance $ 26,500 $ 4,333 $ 4,766 $ 5,243 $ 5,767 $ 6,344 $ 6,978 $ 6,590 $ 19,910 $ 4,599 $ 21,901 $ 2,409 $ 24,091 Outstanding Balance $ 248,178 $ 221,679 $ 217,337 $ 212,571 $ 207,328 $ 201,561 $ 195,217 $ 188,238…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education