On January 1, 2009, Manama Company (Lessee) leased equipment from Bahrain Incorporated (Lessor). Lease payments are $ 200,000. payable annually beginning on January1, 2009 for twenty years. The lease is non-cacncelable. Additional facts 1. The Fair value of the equipment on January 1, 2009, is $ 1,700,000. 2. Its estimated economic life was twenty-five years on January 1, 2009, with unguaranteed residual value of $20,000. 3. The Lease is non-renewable, at the termination of the lease, the equipment reverts to Lessor. 4. The Lessor's implicit rate is 10% which is known to Manama's. Manama's incremental borrowing rate is 12%. 5. Manama uses the straight-line method of depreciation. 6. The present value of the minimum lease payments is $ 1,900,000. Required: Prepare the necessary journal entries, to be recorded by Manama for: 1. Entering into the lease on January 1, 2009. 2. Making the lease payment on January 1, 2009. 3. Expenses related to the lease for the year ended December 31, 2009. 4. Making the lease payment on January 1, 2010. ns. Account Debit Credit

On January 1, 2009, Manama Company (Lessee) leased equipment from Bahrain Incorporated (Lessor). Lease payments are $ 200,000. payable annually beginning on January1, 2009 for twenty years. The lease is non-cacncelable. Additional facts 1. The Fair value of the equipment on January 1, 2009, is $ 1,700,000. 2. Its estimated economic life was twenty-five years on January 1, 2009, with unguaranteed residual value of $20,000. 3. The Lease is non-renewable, at the termination of the lease, the equipment reverts to Lessor. 4. The Lessor's implicit rate is 10% which is known to Manama's. Manama's incremental borrowing rate is 12%. 5. Manama uses the straight-line method of depreciation. 6. The present value of the minimum lease payments is $ 1,900,000. Required: Prepare the necessary journal entries, to be recorded by Manama for: 1. Entering into the lease on January 1, 2009. 2. Making the lease payment on January 1, 2009. 3. Expenses related to the lease for the year ended December 31, 2009. 4. Making the lease payment on January 1, 2010. ns. Account Debit Credit

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.
Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year. 2. The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value. 3. Vaughn depreciates similar machinery it owns on the straight-line basis. 4. The lessee pays all executory costs. 5. Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate. 6. Vaughn has a December 31 year-end. Required: a. Indicate the type of lease that Vaughn Company has entered into and why. b. Prepare an amortization table for Vaughn in Excel. c. Prepare the journal entries on Vaughn’s books for the first two years of the lease.
Nice Manufacturing Company leased a piece of nonspecialized equipment for use in its operations from Righteous Leasing on January 1, 2023. The 10 year lease requires lease payments of $9500, beginning on January 1, 2023, and at each December 31 thereafter through 2031. The equipment is estimated to have a 10 year life, is depreciated on the straight-line basis and will have a $2000 residual value at the end of the lease term on December 31, 2032, which is guaranteed by Nice. Nice's incremental borrowing rate is 7%. Initial direct costs of $2500 are incurred on January 1, 2023. Righteous Leasing acquired the asset just prior to the lease term at a cost of $64,012. Collection of all lease payments is reasonably assured.What is the amount of the lease liability recorded by Nice at the lease's commencement? Group of answer choices $67,741 $22,500 $74,912 $72,412
On January 1, 2021 Richmond Leasing corporation, a public company leased an equipment with a fair value of $100,000 and a cost of $90,000 to Alpha Inc. the following information relates to the agreement: - Rental payments are due on January 1 of each year. - The lease term is for 5 years (with no renewal), - The asset economic life is 7 years - There is an unguaranteed residual value (URV) of $4,000. The VP finance asked how much the annual lease rent should be to ensure a 9% return rate? Select one: a. $20,615. b. $16,007. c. $22,973. d. $23,586.
S At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. • The lease agreement specifies annual payments of $24,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 thereafter through 2031. • The equipment was acquired recently by Crescent at a cost of $162,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of its life. ● . Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $52,070. Crescent seeks a 12% return on its lease investments. By this arrangement, the lease is deemed to be an operating lease. 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. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)? Note: Enter decreases with negative sign. 2.…
On January 1, 2025, Windsor Co. leased a building to Wildhorse Inc. The relevant information related to the lease is as follows. 1. The lease arrangement is for 10 years. The building is expected to have a residual value at the end of the lease of $3,100,000 (unguaranteed), 2. The leased building has a cost of $3,600,000 and was purchased for cash on January 1, 2025. 3. The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. 4. Lease payments are $250,000 per year and are made at the beginning of the year. 5. Wildhorse has an incremental borrowing rate of 9%, and the rate implicit in the lease is unknown to Wildhorse. 6. Both the lessor and the lessee are on a calendar-year basis. Click here to view factor tables. (For caiculation purposes, use 5 decimal places as displayed in the factor table provided.) Prepare the journal entries that Windsor should make in 2025. (List oll debit entries before credit entries. Credit account…
Oscar, Inc., leased equipment from Reynolds Company on January 1, 2023. Reynolds manufactured theequipment at a cost of $200,000. The equipment has a fair value of $260,000.Information related to the lease appears below:Lease term 5 yearsFirst lease payment January 1, 2023Subsequent lease payments December 31, 2023, 2024, 2025, 2026Economic life of the equipment 6 yearsEstimated value of equipment at end of economic life $0Purchase option, reasonably expected to be exercised by Oscar $20,000Implicit and incremental borrowing rate 8% Prepare the entries to record the lease and the first payment for both the lessee and the lessor onJanuary 1, 2023.
Crane Leasing Company signs an agreement on January 1, 2025, to lease equipment to Cullumber Company. The following information relates to this agreement. 1. 2. 3. 4. 5. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. (a) The cost of the asset to the lessor is $401,000. The fair value of the asset at January 1, 2025, is $401,000. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $22,050, none of which is guaranteed. The agreement requires equal annual rental payments, beginning on January 1, 2025. Collectibility of the lease payments by Crane is probable. Click here to view factor tables. Assuming the lessor desires an 6% rate of return on its investment, calculate the amount of the annual rental payment required. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and the final answer to 0…
Aragon Co. leased an equipment to a lessee on January 2, 2010 under a direct financing lease with the following provisions - cost of equipment P1,695,000; Annual rental payable at the end of the year P300,000; Useful life and lease term, 10 years. Aragon Co. incurred and paid P71,700 in negotiation and arranging the lease. The present value of an ordi nary annuity of 1 at 12% for 10 years is 5.650 and the present value of an ordinary annuity of 1 at 11% for 10 years is 5.889. What is the total financial revenue to be recognized over the lease term?
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year. 2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs. 4. The interest rate implicit in the leae is 14%. 5. The intial direct costs are insignificant and assumed to be zero. 6. 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. Prepare journal entries for Edom for the years 2013 and 2014.
edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis beginning January 1, 2013. The lease terms, provisions, and related events are as follows: 11 1. The lease term is 5 years. The lease is noncancelable and requires annual rental receipts of $100,00 to be made in advance at the beginning of eacy year. 2. The equipment costs $313,000. the equipment has an estimatd life of 6 years and, at the end of the lease term, has an unguaranteed residual value of $20,000 accruing to the benefit of Edom. 3. Davis agrees to pay all executory costs. 4. The interest rate implicit in the leae is 14%. 5. The intial direct costs are insignificant and assumed to be zero. 6. 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. Prepare journal entries for Edom for the years 2013 and 2014. Do not give answer in image formate
At January 1, 2024, Café Med leased restaurant equipment from Crescent Corporation under a nine-year lease agreement. • The lease agreement specifies annual payments of $32,000 beginning January 1, 2024, the beginning of the lease, and on each December 31 thereafter through 2031. . The equipment was acquired recently by Crescent at a cost of $243,000 (its fair value) and was expected to have a useful life of 13 years with no salvage value at the end of Its life. . Because the lease term is only 9 years, the asset does have an expected residual value at the end of the lease term of $73,596. Crescent seeks a 9% return on Its lease Investments. . By this arrangement, the lease is deemed to be an operating lease. 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. What will be the effect of the lease on Café Med's earnings for the first year (ignore taxes)? Note: Enter decreases with negative sign. 2. What…