On January 1, 20x2, James Industries entered into an agreement to lease equipment to Espinoza Moving & Storage. The leasequalifies as a sales-type lease. James paid $210,000 for the equipment and is leasing it to Espinoza for $32,000 per year, anamount that will return 8% to James Industries. The present value of the lease payments is $210,000. The lease payments aredue each January 1, beginning in 20x2. James Industries has a December 31st year-end. What is the appropriate journal entryJames Industries should make on December 31, 20x2 to record interest on the lease?Multiple ChoiceInterest receivableInterest revenueCashInterest revenue16,80016,800< Prev16,80016.8007 of 24‒‒‒▪▪▪▪SAMSUNGNext >őENG

When equipment is given on lease than the payments from the clients are received and these payments…

January 1, 20x2, James Industries entered into an agreement to lease equipment to Espir alifies as a sales-type lease. James paid $210,000 for the equipment and is leasing it to Esp ount that will return 8% to James Industries. The present value of the lease payments is $2 e each January 1, beginning in 20x2. James Industries has a December 31st year-end. WH mes Industries should make on December 31, 20x2 to record interest on the lease? Multiple Choice

January 1, 20x2, James Industries entered into an agreement to lease equipment to Espir alifies as a sales-type lease. James paid $210,000 for the equipment and is leasing it to Esp ount that will return 8% to James Industries. The present value of the lease payments is $2 e each January 1, beginning in 20x2. James Industries has a December 31st year-end. WH mes Industries should make on December 31, 20x2 to record interest on the lease? Multiple Choice

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 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

See similar textbooks

Similar questions

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.
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.
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.
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. Assume that Garvey is required to make payments on December 31 each year.
On October 1, 2019, Grahams WeedFeed Inc. signs a contract to maintain the grounds for BigData Corp. The contract ends on March 31, 2020, and has a monthly payment of 3,200. The contract does not include any stipulations for additional periods. On June 1, Grahams WeedFeed and BigData sign a new 12-month contract that is retroactive to April 1, 2020. The monthly fee for the new contract is 4,000 per month and is also retroactive to April 1, 2020. During April and May of 2020, while the new contract was being negotiated, Grahams Weed Feed continued to maintain the grounds, and BigData continued to pay 3,200 per month. BigData was satisfied with Grahams WeedFeeds performance, and the only issue during negotiations was the monthly fee. Required: Determine if a valid contract exists between Grahams WeedFeed and BigData during April and May 2020.
Owens Company leased equipment for 4 years at 50,000 a year with an option to renew the lease for 6 years at 2,000 per month or to purchase the equipment for 25,000 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
On June 30, 2021, Hercule, Inc. leased warehouse equipment from Marble, Inc. The lease agreement calls for Hercule to make semiannual lease payments of $1,828,052 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Hercule's incremental borrowing rate is 6%, the same rate Marble used to calculate lease payment amounts. Marble manufactured the equipment at a cost of $9.5 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 Marble is "selling" the equipment (present value of the lease payments) at June 30, 2021. 2. What amounts related to the lease would Marble report in its balance sheet at December 31, 2021? (Ignore taxes.) 3. What would be the net effect of the lease that Marble would report in its income statement for the year ended December 31, 2021? (Ignore taxes.) (For all requirements, round your…
On Jan 1, 20x1, Panda Yummy entered into an agreement to lease packaging equipment from RCT financing. The lease was for 6 years, commencing immediately on January 1, 20x1. Under the agreement, Panda Yummy would make a lease payment of $24,000 at the beginning of each of the 6 years. The equipment was expected to have an economic life of 1O years. Under the agreement, Panda Yummy had the option of purchasing the packaging equipment for $2,000 at the end of the lease term, when the equipment was expected to be worth $8,000. The lessor's rate of return on the leasing arrangement was 7% Panda Yummy had a year-end of Dec 31. Required Prepare an amortization table for Panda Yummy for the lease. Prepare all Journal entries for 20x1 and 20X2 Prepare the journal entries that Panda Yummy would make when exercising the bargain purchase option at the end of the lease term.
On January 1, Year 1, Robin Corp. signs a contract to lease non-specialized manufacturing equipment from Owl, Inc. Robin agrees to make lease payments of $36,000 per year. Additional information pertaining to the lease is as follows: 1. The term of the noncancelable lease is four years. Payments are due every December 31, beginning December 31, Year 1. Owl expects to collect all lease payments. 2. The fair value of the manufacturing equipment on January 1, Year 1, is $150,000. The equipment has an economic life of seven years. 3. The equipment has an estimated residual value of $15,000 at the end of the lease term. This amount is not guaranteed by Robin. 4. Both Robin and Owl depreciate similar assets using the straight-line method. 5. Robin's incremental borrowing rate is 8% per year; Owl's implicit interest rate is 6% and is known by Robin. 6. Robin pays $1,100 per year for maintenance of the equipment directly to an applicable third party. 7. Assume that this is an operating lease…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $60,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $120,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $180,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2024, Winn Heat Transfer leased office space under a three-year operating lease agreement. The arrangement specified three annual lease payments of $72,000 each, beginning December 31, 2024, and on each December 31 through 2026. The lessor, HVAC Leasing, calculates lease payments based on an annual interest rate of 8%. Winn also paid a $231,000 advance payment at the beginning of the lease. With permission of the owner, Winn made structural modifications to the building before occupying the space at a cost of $303,000. The useful life of the building and the structural modifications were estimated to be 30 years with no residual value. 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: Prepare the appropriate entries for Winn Heat Transfer from the beginning of the lease through the end of 2026. Winn's fiscal year is the calendar year. Note: If no entry is required for a transaction/event,…
On January 1, 2024, Gravel Incorporated leased construction equipment from Rocky Mountain Leasing. Rocky Mountain Leasing purchased the equipment from Bishop Incorporated at a cost of $2,069,621. Gravel's borrowing rate for similar transactions is 10%. The lease agreement specified four annual payments of $432,000 beginning January 1, 2024, the beginning of the lease, and at each December 31 thereafter through 2026. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $1,506,319. On January 1, 2026 (after two years and three payments), Gravel and Rocky Mountain agreed to extend the lease term by two years. The market rate of interest at that time was 9%. 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 the appropriate journal entries for Gravel Incorporated on January 1, 2026, to adjust its lease liability for the…