On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the capital lease liability should be which of the following? A. $102,500 B. $111,500 C. $112,500 D. $290,000

On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the capital lease liability should be which of the following? A. $102,500 B. $111,500 C. $112,500 D. $290,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 5RE: Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the...

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Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would make in the first year of the lease assuming the lease is classified as a sales-type lease. Assume that the lessee is required to make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.
Lamplighter Company, the lessor, agrees to lease equipment to Tilson Company, the lessee, beginning January 1, 2016. The lease terms, provisions, and related events are as follows: • The lease is noncancelable and has a term of 8 years. • The annual rentals are $32,000, payable at the end of each year. • Tilson agrees to pay all executory costs. • The interest rate implicit in the lease is 14%. • The cost of the equipment to the lessor is $110,000. • The lessor incurs no material initial direct costs. • The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. • The lessor estimates that the fair value at the end of the lease term will be $20,000 and that the economic life of the equipment is 9 years. Required: 1. Calculate the selling price implied by the lease and prepare a table summarizing the lease receipts and interest revenue earned…
On 1 January 2014, Lystra entered into a lease agreement with Trina to rent an asset for a 6 year period, at which point, it will be returned to the lessor and scrapped. The annual payments of $18,420, made in advance. The initial measurement of the lease liability amounts to $84,000, discounted at the implicit interest rate shown in the lease agreement of 12.5%. Lystra has the right to determine the use of the asset during the lease term and will obtain substantially all the economic benefit from its use. Required 1. According to IFRS 16, How should the right of use and lease liability be measured initially? And what discount rate should be used for the present value of the minimum lease payments? 2. How should the right of use of a leased asset be depreciated – lower of the lease term and the economic life of the asset?
On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease requiredBlaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. Thelease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the8% interest rate implicit in the lease. In Blaugh’s December 31, 2016, balance sheet, the capital lease liabilityshould bea. $102,500b. $111,500c. $112,500d. $290,000
At the beginning of 2016, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a fouryear lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of interest implicit in the agreement? 2. Prepare the lessee’s journal entry at the inception of the lease. 3. Prepare the journal entry to record the first lease payment at December 31, 2016. 4. Prepare the journal entry to record the second lease payment at December 31, 2017. 5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 11%. Prepare the lessee’s entry at the inception of the lease.
On March 31, 2016, Southwest Gas leased equipment from a supplier and agreed to pay $200,000 annually for 20 years beginning March 31, 2017. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $2,293,984 lease liability. Required: Determine the interest rate implicit in the lease agreement.
On 1 January 2014, Lystra entered into a lease agreement with Trina to rent an asset for a 6 year period, at which point, it will be returned to the lessor and scrapped. The annual payments of $18,420, made in advance. The initial measurement of the lease liability amounts to $84,000, discounted at the implicit interest rate shown in the lease agreement of 12.5%. Lystra has the right to determine the use of the asset during the lease term and will obtain substantially all the economic benefit from its use. Required 1 .Explain how the above lease would be accounted for the year ending 31 December 2014 in both the books of the lessee and lessor including producing relevant extracts from the statement of profit or loss and statement of financial position and the relevant portion of the amortisation schedule 1a State the criteria for a contract to be classified as a lease 2. What is the lessee required to recognize in the financial statement at the inception of a lease? Right of…
Mike Co. entered into a finance lease on January 1, 2016. A third party guaranteed the residual value of the asset under the lease estimated to be P 600,000 on January 1, 2021, the end of the lease term. Annual lease payments are P 500,000 due to each Dec. 31, beginning Dec. 31, 2016. The last payment is due Dec. 31, 2020. The remaining useful life of the asset was six years at the commencement of the lease. Both the lessor and lessee used 10% as the interest rate. The PV of 1 at 1 0% for 5 periods is .62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. REQUIREMENTS: 1. What is the net lease receivable of the lessor at the commencement of the lease? 2.What is the net lease receivable of the lessor at the commencement of the lease?
On January 1, 2016, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: • The lease is noncancelable and has a term of 8 years. • The annual rentals are $34,500, payable at the beginning of each year. • The interest rate implicit in the lease is 11%. • Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2024. • The cost of the equipment to the lessor is $137,000, and the fair retail value is approximately $197,100. • The lessor incurs no material initial direct costs. • The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. • The lessor estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. The lessor calculates that the present…