Claude leased a facility from ML partnership in January 1, 2018. Terms of the lease were as follows: Annual rental Annual real property tax assumed and paid by Claude 50,000 300,000 Security deposit 200,000 Lease term 12 years On January 1, 2018, Claude paid the annual rental for 2018 and 2019 including the security deposit (non-refundable). In addition to annual rental and real property taxes, part of the lease was for Claude to improve the facility. The improvement was completed on January 1, 2020. Details of the improvements were as follows: Cost of leasehold improvement - 6,000,000 Estimated useful life of improvement - 15 years
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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.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.
- Claude leased a facility from ML partnership in January 1, 2018. Terms of the lease were as follows: Annual rental 300,000 Annual real property tax assumed and paid by Claude 50,000 Security deposit 200,000 Lease term 12 years On January 1, 2018, Claude paid the annual rental for 2018 and 2019 including the security deposit (non-refundable). In addition to annual rental and real property taxes, part of the lease was for Claude to improve the facility. The improvement was completed on January 1, 202O. Details of the improvements were as follows: Cost of leasehold improvement - 6,000,000 Estimated useful life of improvement - 15 years Determine the income to be reported by ML partnership in 2020 assuming the company opted to report income from improvement using the spread-out method.ABC Company leases a machinery from XYZ Company under a twelve-month operating lease. As an inducement to enter the lease, XYZ Company grants ABC free rent for the first two months. The lease is effective September 1, 2020 and provides for monthly rental of P12,000 to begin on November 1, 2020. 1.Compute for the rent expense for 2021 2.Determine the total net income to be recognized by the Lessor for the year 2020 as a result of this lease.On January 1, 2018, JOSH Corporation leased out an office space for 15 years to PH Corporation at an monthly rental of P60,000. On the same date, JOSH received the following amounts from PH: Annual rental for year 2018 and 2019 Security deposit amounting to P100,000 In addition, PH agreed that it will pay the insurance on the leased property during the first three years of the lease contract amounting to P100,000 per year. Records show that on April 1, 2020, PH introduced leasehold improvement which will be transferred to JOSH upon the end of the lease term. The cost of construction totalled P6,375,000 with the estimated useful life of 20 years. How much should PH report as deductible expense for 2020?
- On January 1, 2018, Mr. V leased his vacant lot for period of 12 years to Mr. J at an annual rate of 2,400,000. It was also agreed that Mr. J will pay the following: 4,800,000 representing rental payment for 2018 and 2019 Security deposit of 2,400,000 Annual real property tax of 30,000 The lease contract provides, among others that the lessee will construct a 5-storey building for parking purposes at a cost of 9,500,000. Ownership of the building shall belong to the lessor upon the expiration or termination of the lease contract. The building was completed on July 1, 2020 with an estimated useful life of 15 years. How much can Mr. J claim as deduction in relation to the lease in 2021?Ebasan Company leased a building to Bu Corporation on January 1 2021. The lease expires on January 1 2026. The annual rental is P3,000,00D. Additionally, on January 1, 2021, Bu paid P500,000 as a lease bonus and P250,000 as a security deposit to be refunded upon expiration of the lease. Ebasan paid P150,000 to a real estate broker as finder fee. During 2021, Ebasan incurred insurance and property tax expense of P100,000. The building was depreciated P150,000 per year. What amount should Ebasan recognize as net rental revenue for 2021?Mando Co. leased a piece of nonspecialized equipment for use in its operations from Empire Leasing on January 1, 2019. The 5- year lease requires annual lease payments of $346, beginning on January 1, 2019. The lease qualifies as an operating lease for the lessee. Mando's incremental borrowing rate is 11%. Mando incurred initial direct costs of $37. What is the lease expense that Mando will record at the end of each year of the lease? (Round to the nearest whole dollar.)
- On June 1, 2021 Maroon Company entered into a 5-year nonrenewable lease, commencing on that date, for office space and made the following collections from the lessee: • Bonus to obtain lease, P300,000 First month's rent, P100,000 • Last month's rent, P100,000 In its income statement for the year ended June 30, 2021, what amount should Maroon report as rent income?On January 1,2019, Glen Company leased a building to Mix Company for 10-year term at an annual rental of P500,000. At inception of the lease, Glen received P2,000,000 covering the first two years rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to Mix Company upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the P2,000,000 should be reported as current liability on December 31, 2019?On January 1,2019, Glen Company leased a building to Mix Company for 10-year term at an annual rental of P500,000. At inception of the lease, Glen received P2,000,000 covering the first two years rent of P1,000,000 and a security deposit of P1,000,000. This deposit will not be returned to Mix Company upon expiration of the lease but will be applied to payment of rent for the last two years of the lease.What amount should be reported as current and noncurrent liability in December 31, 2020 statement of financial position? a. 0 2,000,000b. 500,000 1,000,000c. 1,000,000 1,000,000d. 1,000,000 500,000