Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of $55,000 for the equipment in its inventory account. The lease commenced on January 1 with the first annual payment of $18,500 due immediately. The equipment has a useful life of 4 years, an estimated fair value of $68,880, and no residual or salvage value. The implicit rate of the lease is 5% and collectibility of the lease payments from Parker is probable. Record Franklin's required journal entry to record interest revenue on December 31. Note: Round your answers to the nearest whole dollar. Account Name Dr. Date Dec. 31 Lease Receivable Interest Revenue X 0✔ Cr. 0✔ 0 x

Franklin Co. leased its manufactured equipment to Parker Inc. for a 4-year term. Franklin Co. reported a book value of $55,000 for the equipment in its inventory account. The lease commenced on January 1 with the first annual payment of $18,500 due immediately. The equipment has a useful life of 4 years, an estimated fair value of $68,880, and no residual or salvage value. The implicit rate of the lease is 5% and collectibility of the lease payments from Parker is probable. Record Franklin's required journal entry to record interest revenue on December 31. Note: Round your answers to the nearest whole dollar. Account Name Dr. Date Dec. 31 Lease Receivable Interest Revenue X 0✔ Cr. 0✔ 0 x

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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
Lessee and Lessor Accounting Issues The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are nude at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life. Required: 1. Record the lease (including the initial receipt of 2,000) and the receipt of the second and third installments of 2,000 in Ansons accounts. Carry computations to the nearest dollar. 2. Record the lease (including the initial payment of 2,000), the payment of the second and third installments of 2,000, and monthly depreciation in Bullards accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
Sales-Type Lease with Guaranteed Residual Value Calder Company, the lessor, enters into a lease with Darwin Company, the lessee, to provide heavy equipment beginning January 1, 2017. The lease is appropriately classified as a sales-type lease. The lease terms, provisions, and related events are as follows: The lease is noncancelable, has a term of 8 years, and has no renewal or bargain purchase option. The annual rentals are 65,000, payable at the end of each year. The interest rate implicit in the lease is 15%. Darwin agrees to pay all executory costs directly to a third party. The cost of the equipment is 280,000. The fair value of the equipment to Calder is 308,021.03. Calder incurs no material initial direct costs. Calder expects that it will be able to collect all lease payments. Calder estimates that the fair value at the end of the lease term will be 50,000 and that the economic life the equipment is 9 years. This residual value is guaranteed by Darwin. The following present value factors are relevant: PV of an ordinary annuity n = 8, i = 15% = 4.487322 PV n = 8, i = 15% = 0.326902 PV n = 1, i = 15% = 0.869565 Required: 1. Determine the proper classification of the lease. 2. Prepare a table summarizing the lease receipts and interest income earned by Calder for this lease. 3. Prepare journal entries for Calder for the years 2019, 2020, and 2021. 4. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the present value of next years payment approach to classify the lease receivable as current and noncurrent. 5. Next Level Prepare partial balance sheets for December 31, 2019, and December 31, 2020, showing how the accounts should be reported. Use the change in present value approach to classify the lease receivable as current and noncurrent.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor) on January 1 of Year 1. The following information pertains to this lease agreement: 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. 2. The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year. 3. The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19. 4. The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time. Required: Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease. X Chart of Accounts CHART OF ACCOUNTS Keller Corporation General Ledger ASSETS 111…
Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor) on January 1 of Year 1. The following information pertains to this lease agreement: 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. 2. The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year. 3. The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19. 4. The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time. Required: Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease. there are 6 entries
Keller Corporation (the lessee) entered into a general equipment lease with Dallo Company (the lessor) on January 1 of Year 1. The following information pertains to this lease agreement: 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. 2. The lease term is 8 years and requires annual payments of $10,000 at the beginning of each year. 3. The fair value of the equipment at lease inception is $100,000. Assume that the present value of lease payments discounted at a 10% interest rate is $58,684.19. 4. The equipment has an estimated economic life of 20 years and has zero residual value at the end of this time. Required: Prepare the journal entry that Keller Corporation would make during the first year of the lease assuming that the lease is classified as an operating lease. CHART OF ACCOUNTS Keller Corporation General Ledger ASSETS 111 Cash 121 Accounts Receivable 141…
ZZ Co leased equipment from LLL Co on July 1, Year 1 under a lease classified as a finance lease. The present value of the lease payments discounted at 10% was $53,553. The lease includes seven annual payments of $10,000. which expires every July 1, beginning year 1. LLL Co has built this equipment at a cost of $52,000 and its market value is $53,553. What amount of interest income must the company recognize in its statement of income and expenses for year 31 of year 1? A) $10,000 B) $5,355 C) $4,355 D) 2,178
Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning of the current year, the construction equipment was leased on a contract specifying that ownership of thereon will transfer to the lessee at the end of the lease period. The annual lease payments do not include executory costs. Original cost of the construction equipment is P9,000,000. Lease payments payable at beginning of each year is P2,000,000. Estimated residual value is P1,000,000. Implicit interest rate is 12%, 10-year lease term. Present value of an annuity due of 1 at 12% for 10 periods is 6.33 and PV of 1 at 12% for 10 periods is 0.32. 1. What amount should be reported as gross profit on sale? 2. How much is the interest income for the current year?
Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning of the current year, the construction equipment was leased on a contract specifying that ownership of thereon will transfer to the lessee at the end of the lease period. The annual lease payments do not include executory costs. Original cost of the construction equipment is P9,000,000. Lease payments payable at beginning of each year is P2,000,000. Estimated residual value is P1,000,000. Implicit interest rate is 12%, 10-year lease term. Present value of an annuity due of 1 at 12% for 10 periods is 6.33 and PV of 1 at 12% for 10 periods is 0.32. How much is the total financial revenue over the lease term? What amount should be reported as gross profit on sale? How much is the interest income for the current year?