FINANCIAL ACCOUNTING 9TH
16th Edition
ISBN: 9781308821672
Author: Libby
Publisher: MCG/CREATE
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Chapter S, Problem 3E
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Edison Leasing leased high-tech electronic equipment to Manufacturers Southern on January 1, 2011.
Edison purchased the equipment from International Machines at a cost of $112,080.
Related Information:
2 years (8 quarterly periods)
$15,000 at the beginning of each period
2 years
$112,080
8%
Lease term
Quarterly rental payments
Economic life of asset
Fair value of asset
Implicit interest rate
(Also lessee's incremental borrowing rate)
Required:
Prepare a lease amortization schedule and appropriate entries for Edison Leasing from the inception of the lease
through January 1, 2012. Edison's financial year ends December 31.
Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2011.
Edison purchased the equipment from International Machines at a cost of $112,080.
Related Information:
2 years (8 quarterly periods)
$15,000 at the beginning of each period
2 years
$112,080
Lease term
Quarterly rental payments
Economic life of asset
Fair value of asset
8%
Implicit interest rate
(Also lessee's incremental borrowing rate)
Required:
Prepare a lease amortization schedule and appropriate entries for Manufacturers Southern from the inception off
the lease through January 1, 2012. Depreciation is recorded at the end of each financial year (December 31) on a
straight-line basis.
!
Required information
[The following information applies to the questions displayed below.]
On January 1 of this year, Google Corporation leased a package of high-speed servers by
signing a five-year finance lease. Lease payments of $300,000 are due at the end of each
year. Google uses the straight-line method to amortize leased assets and the effective
interest rate method to amortize lease liabilities. Assume that the appropriate annual
discount rate is 9 percent.
Prepare the journal entries to record the reduction of the lease asset and the lease liability on December 31,
Year 2.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first
account field. Round your answers to 2 decimal places.
1
No
Transaction
a.
× Answer is not complete.
General Journal
Debit
Credit
Lease liability
☑
300,000.00
Cash
300,000.00
Chapter S Solutions
FINANCIAL ACCOUNTING 9TH
Ch. S - Defining a Lessor Which of the following best...Ch. S - Prob. 2MCQCh. S - Prob. 3MCQCh. S - Prob. 4MCQCh. S - Prob. 5MCQCh. S - Prob. 6MCQCh. S - Prob. 1MECh. S - Prob. 2MECh. S - Prob. 3MECh. S - Prob. 4ME
Ch. S - Prob. 1ECh. S - Prob. 2ECh. S - Prob. 3ECh. S - Prob. 4ECh. S - Calculating a Deferred Tax Liability LOS-5 On...Ch. S - Prob. 6ECh. S - Prob. 7ECh. S - Prob. 8ECh. S - Prob. 9ECh. S - Prob. 10ECh. S - Converting Operating Leases to Capital Leases...Ch. S - Converting Operating Leases to Capital Leases...Ch. S - Computing Effective Tax Rates LOS-4 Below is...Ch. S - Prob. 4PCh. S - Prob. 5PCh. S - Prob. 6PCh. S - Analyzing Starbuckss Lease Disclosures The...Ch. S - Analyzing Disneys Income Tax Disclosures The...
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- Accounting On January 1, 2010, Ball Co. leases a bulldozer from CAT Co. for 4 years at $10,000 per year. The lease payments are due at the end of each year. The useful life of that bulldozer is 5 years. There is no bargain purchase option at the end of the lease term. The market interest rate is 10%. Ball Co. uses straight-line depreciation. What should Ball Co. recognize for this lease in journal entries on 1/1/2010 and 12/31/2010?arrow_forwardHelp Save & Exit Submit On June 30, 2021, Elle Company leased a machine from Fyre Leasing. The contract requires Elle to make semiannual lease payments of $243,073 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Elle's incremental borrowing rate is 12%, the same rate used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. Fyre constructed the machine at a cost of $1,340,000. (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 Fyre is "selling" the machine (present value of the lease payments) at June 30, 2021. 2. What would be the amounts related to the lease that Fyre would report in its balance sheet at December 31, 2021? (Ignore taxes.) 3. What would be the amounts related to the lease that Fyre would report in its income statement for the year…arrow_forwardOn 1st January 2015, Trademart SAOG entered into an agreement to lease an item of plant from a manufacturer for 5 years. The lease requires five annual payments of RO 200,000 each commencing from 1st January 2016. The plant would have a useful life of five years and with no residual value. The present value of the total lease payments is OMR 840,000. The cost of capital used is 12% find the initial amount of lease liability right to use asset recognition in the first year in the boaks of lessee. ion Lease liability OMR 640,000 and right to use asset OMR 840,000 None of them Lease liability OMR 840,000 and right to use asset OMR 840,000 Lease liability OMR 640,000 and right to use asset OMR 640,000arrow_forward
- Entries for capital lease- lessee Goodridge has a long-standing policy of acquiring company equipment by leasing. Early in 2011, the company entered into a lease for a new milling machine the lease stipulates that annual payment will be made for five years. The payments are to be made in advance on December 31 of each year. At the end of the five years, Goodridge's financial records show the incremental borrowing rate is to be less than the implicit interest rate. The estimated economic life of the equipment is 12 years. Goodridge uses the calendar year for reporting purposes and straight-line deprecation for other equipment. In addition, the following information about the lease is also available. Annul lese payment - $ 55 000 Purchase option price- $ 25 000 The estimated fair value of machine after 5 years- $ 75 000 Incremental borrowing rate - 10% Date of first payment Jan 1, 2011 INSTRUCTION 1. Compute the amount to be capitalized as an asset for the lease of the…arrow_forwardNovak Limited has entered into an agreement to lease manufacturing equipment. The following terms are included in the lease: Lease terms 5 years Payments required monthly on the last day of the month Leasing interest rate Estimated useful life of equipment PV of lease payments $3,114 8%/annum 5 years $153,600 The lease is entered into on January 1, 2024. The equipment can be purchased for $160,000. The company uses straight-line depreciation. (a) Prepare the journal entry for 2024 to recognize the lease. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entry before credit entry.) Date January 1, 2024 Account Titles Debit Creditarrow_forwardLeased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,606, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet? b. What account will indicate that lease payments have been made? Feedback From the viewpoint of the lessee, there are two types of lease agreements: operating and capital. In an operating lease, the lessee acquires the right to use an asset for a limited period of time. The lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability. 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when…arrow_forward
- Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2017. Annual lease payments of $1,616, based on an interest rate of 6%, are to be made every December 31, beginning with December 31, 2017. PV of Annuity of $1 Required: Refer to the table above for present value factors. 1. Assume that the lease is treated as an operating lease. a. Will the value of the forklift appear on Koffman's balance sheet?No b. What account will indicate that lease payments have been made?Lease expense From the viewpoint of the lessee, there are two types of lease agreements: operating and capital. In an operating lease, the lessee acquires the right to use an asset for a limited period of time. The lessee is not required to record the right to use the property as an asset or to record the obligation for payments as a liability. 2. Assume that the lease is treated as a capital lease or finance lease. a. Identify and analyze the effect when…arrow_forward2. On August 31, 2018, Simmons Inc. leased warehouse equipment from Covington Corp. The lease agreement calls for Simmons to make semiannual lease payments of $50,000 over a 7-year lease term, payable at August 31 and February 28, with the first payment on August 31, 2018. Simmons' incremental borrowing rate is 11%, the same rate Covington used to calculate lease payment amounts. Covington purchased the warehouse equipment at a cost of $700,000 on August 31, 2018 with an expected useful life of 10 years and no salvage value. The fiscal year for both Simmons and Covington ends on December 31. Required: a. What are the present value of the lease payments on August 31, 2018? b. Starting on August 31, 2018 prepare all journal entries related to the lease that Simmons would have to make through December 31, 2020. c. Starting on August 31, 2018 prepare all journal entries related to the lease that Covington would have to make through December 31, 2020. d. What amounts related to the lease…arrow_forwardOn 1 October 2014, Fresh Company acquired an item of plant under a five-year lease agreement. At that date, the present value of the total lease payments was $25m. The agreement had an implicit finance cost of 10% per annum and required an immediate deposit of $2m and annual rentals of $6m paid on 30 September each year for five years. What is the current liability of the lease in Fresh Company's statement of financial position as at 30 September 2015?arrow_forward
- Manufacturers Southern leased high-tech electronic equipment from Edison Leasing on January 1, 2016. Edison purchased the equipment from International Machines at a cost of $112,080. Related Information: Lease term 2 years (8 quarterly periods) Quarterly lease payments $15,000 at Jan. 1, 2016, and at Mar. 31, June 30, Sept. 30, and Dec. 31 thereafter Economic life of asset 2 years Interest rate charged by the lessor 8% Required: Prepare a lease amortization schedule for the two-year term of the lease and appropriate entries for Manufacturers Southern from the beginning of the lease through December 31, 2016. The company’s fiscal year-end is December 31. Appropriate adjusting entries are recorded at the end of each quarter.arrow_forwardEastern Edison Company leased equipment from Low-Tech Leasing on January 1, 2018. Low-Tech recently purchased the equipment at a cost of $334.936. Other information: 5 years $79,000 on January 1 each year 5 years Lease term Annual payments Life of asset Fair value of asset $334,936 Implicit interest rate 9% Incremental rate 9% There is no expected residual value. Required: Prepare appropriate journal entries for Low-Tech Leasing for 2018. Assume a December 31 year-end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Round your answers to the nearest whole dollar amounts.) View transaction list Journal entry worksheet 1 2 3 > Record the entry at the inception of the lease. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2018arrow_forwardA company acquired an item of plant under a finance lease on 1 April 2007. The present value of the minimum lease payments (MLP) was $15.6 million and the rentals are $6 million per annum paid in arrears for three years on 31 March each year. The interest rate implicit in the lease is 8% per annum. What is the TOTAL amount that will appear on the Income Statement in respect of this lease for the year ended 31 March 2008(end of year two)? Year Balance at Beginning of Interest Principal Cash Balance at end of payment Payment Payment year year A C-A C 07/08 15 600 000 1 248 000 4 752 000 6 000 000 10 848 000 08/09 10 848 000 867 840 5 132 160 6 000 000 09/10 5 715 840 457 267 5 542 733 6 000 000 5 715 840 173 107 Answer:arrow_forward
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