Kate Co. leased a warehouse from Big Dave Industries on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 10% was $162,217. Ten annual lease payments of $24,000 are due each July 1, beginning July 1, 2021. Big Dave had constructed the building recently for $132,000 and its retail fair value was $162,217. Required: Assuming that control of the warehouse building is transferred to Kate Co. at the beginning of the lease. Prepare the two journal entries to record the lease by Big Dave at July 1, 2021.

Kate Co. leased a warehouse from Big Dave Industries on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 10% was $162,217. Ten annual lease payments of $24,000 are due each July 1, beginning July 1, 2021. Big Dave had constructed the building recently for $132,000 and its retail fair value was $162,217. Required: Assuming that control of the warehouse building is transferred to Kate Co. at the beginning of the lease. Prepare the two journal entries to record the lease by Big Dave at July 1, 2021.

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 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs 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.
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return?
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? A.P 500,000 B.P 477,826 C.P 559,610 D.P 460,000
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment payable in advance required to yield the desired return? P 500,000 P 477,826 P 559,610 P 460,000
ABC Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P 2,300,000. On January 1,2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1,2020. The residual value of the machine is P 200,000. The lease terms are arranged so that a return of 12% is earned by the lessor. The present value of 1 at 12% for six periods is 0.51, the present value of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11 What is the annual lease payment payable in advance required to yield the desired return? A. P 500,000 B. P 477,826 C. P 559,610 D. P 460,000
Angelo Company decided to enter the leasing business. The entity acquired a specialized packaging machine for P2,300,000. On January 1, 2020, Angelo Company leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual payment are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12% is earned by Angelo Company. What is the annual lease payment payable in advance required to yield the desired return?
On January 1, 2021, Moorecraft Finance Company agreed to lease a piece of machinery to Ward Construction Products, Inc. Moorecraft paid $1,554,516 to acquire the machine from the manufacturer and carries it at this amount in its financial statements. The fair value (current selling price) of the machine is $1,554,516. The relevant lease terms follow. Annual rental payments of $263,516 are due on January 1 of each year. These payments do not include any executory costs. Lease term is 6 years. There is no purchase option. The lessor expects to recover the unguaranteed residual value of $280,000 at the termination of the lease. The economic life of the asset is 7 years. The lessor’s implicit rate is known to Ward Construction. Annual maintenance is $20,000, and annual property tax is $12,500. The lessee pays both on January 1 of the year to the lessor. The property taxes are included in the payment made by the lessee to the lessor. The lessor has no material uncertainties regarding…
Pam D. Corp. decided to enter the leasing business. Dumbrique acquired a specialized packaging machine for P2,300,000. On January 1, 2020, the entity leased the machine for a period of six years, after which title to the machine is transferred to the lessee. The six annual lease payments are due each January 1 and the first payment was made on January 1, 2020. The residual value of the machine is P200,000. The lease term are arranged so that a return of 12% is earned by the lessor. The PV of 1 at 12% for six periods is 0.51, the PV of an annuity in advance of 1 at 12% for six periods is 4.60 and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11 39. What is the annual lease payment payable in advance required to yield the desired return?40. What is the total financial revenue?
King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $52,538 over a six-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. The asset being leased cost Mann $230,000 to produce. Required:1. Determine the price at which the lessor is “selling” the asset (present value of the lease payments).2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed? Group of answer choices 27.95% 14.72% 6.85% 12.23%
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed?
In 2024, Sheffield Enterprises negotiated and closed a long-term lease contract for newly constructed truck terminals and freight storage facilities. The buildings were constructed on land owned by the company. On January 1, 2025, Sheffield took possession of the leased property. The 20-year lease is effective for the period January 1, 2025, through December 31, 2044. Advance rental payments of $772,000 are payable to the lessor (owner of facilities) on January 1 of each of the first 10 years of the lease term. Advance payments of $430,000 are due on January 1 for each of the last 10 years of the lease term. Sheffield has an option to purchase all the leased facilities for $1 on December 31, 2044. At the time the lease was negotiated, the fair value of the truck terminals and freight storage facilities was pproximately $7,601,000. If the company had borrowed the money to purchase the facilities, it would have had to pay 9% interest. Compute the present value of lease vs purchase.…