On January 1, 2024, Oriole Ltd., which uses IFRS, entered into an eight-year lease agreement for a conveyor machine. Annual le payments are $22,200 at the beginning of each lease year, which ends December 31, and Oriole made the first payment on Janu 2024. At the end of the lease, the machine will revert to the lessor. However, conveyor machines are expected to last for only ei years and have no residual value. At the time of the lease agreement, conveyor machines could be purchased for $125,000 cash Equivalent financing for the machine could have been obtained from Oriole's bank at 12%. Oriole's fiscal year coincides with the calendar year. Oriole uses straight-line depreciation for its conveyor machines. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

On January 1, 2024, Oriole Ltd., which uses IFRS, entered into an eight-year lease agreement for a conveyor machine. Annual le payments are $22,200 at the beginning of each lease year, which ends December 31, and Oriole made the first payment on Janu 2024. At the end of the lease, the machine will revert to the lessor. However, conveyor machines are expected to last for only ei years and have no residual value. At the time of the lease agreement, conveyor machines could be purchased for $125,000 cash Equivalent financing for the machine could have been obtained from Oriole's bank at 12%. Oriole's fiscal year coincides with the calendar year. Oriole uses straight-line depreciation for its conveyor machines. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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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. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
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.
On January 1, 2025, Sandhill Company leased equipment to Wildhorse Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Wildhorse has the option to purchase the equipment for $2,000, while the expected residual value at the end of the lease is $5,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2025. 3. The fair value of the equipment on January 1, 2025, is $165,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Wildhorse depreciates all of its equipment on a straight-line basis. 5. 6. Sandhill set the annual rental to ensure a 6% rate of return. Wildhorse's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee's accounting periods end on December 31.
On January 1, 2021, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a sales-type lease. Calloway paid $300,000 for the machine and is leasing it to Zone for $33,000 per year, an amount that will return 8% to Calloway. The present value of the lease payments is $300,000. The lease payments are due each January 1, beginning in 2021. What is the appropriate interest entry on December 31, 2021? Multiple Choice Cash Interest revenue. Cash Interest receivable Interest receivable Interest revenue. Interest receivable Interest revenue 24,000 21,360 21,360 24,000 24,000 21,360 21,360 24,000
Charlotte Corp., a machinery dealer, leased a machine to Eleanor Corp. on January 1, 2022. The lease is for an 8-year period, is noncancelable and requires equal annual payments of $35,013 at the beginning of each year. The first payment is received on January 1, 2022. Charlotte had purchased the machine during 2021 for $160,000. The FMV of the machine is 200,000. The present value of the minimum lease payments is also $200,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Charlotte. Charlotte set the annual rental to ensure an 11% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Charlotte at the termination of the lease. Required: What type of lease is this for Charlotte (lessor) and why Prepare all of Charlotte’s journal entries for 2022.
On January 1, 2023, Precision Pumps leases nonspecialized pumping equipment to Mega Construction. The equipment is delivered on January 1. The lease term is 4 years with no renewal or purchase options, and title to the leased asset is retained by the lessor at the end of the lease term. The lease requires annual fixed rental payments of $8500 per year beginning on January 1, 2023, and then December 31 of each year starting on December 31, 2023. The fair value of the equipment is $40,430 and has a carrying amount on Precision's books of $27,492. The equipment has a remaining life of 8 years. The estimated residual value of the equipment is $14,700. The lessee does not guarantee the residual value, but Precision secured an unrelated third party to guarantee $14,700; collection of this guaranteed residual value and lease payments are reasonably certain. The rate implicit in the lease is 9%. There are no prepaid rentals, and neither party to the agreement pays initial direct costs.What is…
Ivanhoe Ltd., which has a calendar year end, entered into an equipment lease on June 1, 2023, with Cullumber Financing Limited. The lease term is two years and requires payments of $3,500 at the end of each month beginning September 30. The stated rate of interest in the lease is 6%. As an incentive for entering into the contract, Cullumber has agreed to forgive the first three payments under the lease (June, July, and August). Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1. (b) Your answer is incorrect. Calculate the amount that Ivanhoe should record for the lease obligation on June 1, 2023. Hint: Calculate the present value of the monthly payments as at September 1, 2023, and then discount this amount to June 1, 2023. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round intermediate calculations and final answer to 2 decimal places, e.g. 5,275.25. Round interest…
On June 30, 2024, Clark, Incorporated leased warehouse equipment from Woodward, Incorporated. The lease agreement calls for Clark to make semiannual lease payments of $700,000 over a 2-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Clark's incremental borrowing rate is 10%, the same rate Woodward used to calculate lease payment amounts. Woodward manufactured the equipment at a cost of $2,220,000. Lease date Semi-annual payments Lease term Payments per year Equipment's cost Clark's incremental borrowing rate 1. Determine the price at which Woodward is 'selling' the equipment (present value of the lease payments) using Excel's PV function. 2. Prepare the journal entry to record the sale by Woodward Incorporated on June 30, 2024. Date General Journal Debit June 30, 2024 3. Prepare an amortization schedule for the 2-year term of the lease. Date June 30, 2024 December 31, 2024 June 30, 2025 December 31, 2025…
On June 30, 2024, Georgia-Atlantic, Incorporated, leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value of the equipment is $3 million. 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. Determine the present value of the lease payments on June 30, 2024 that Georgia-Atlantic uses to record the right-of-use asset and lease liability. 2. What amount related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2024 (ignore taxes)? 3. What amount related to the lease would…
Blossom Steel Company, as lessee, signed a lease agreement for equipment for 5 years, beginning December 31, 2025. Annual rental payments of $41,000 are to be made at the beginning of each lease year (December 31). The interest rate used by the lessor in setting the payment schedule is 4%; Blossom's incremental borrowing rate is 6%. Blossom is unaware of the rate being used by the lessor. At the end of the lease, Blossom has the option to buy the equipment for $5,000, considerably below its estimated fair value at that time. The equipment has an estimated useful life of 7 years, with no salvage value. Blossom uses the straight-line method of depreciation on similar owned equipment. Click here to view factor tables. Prepare the journal entries, that Blossom should record on December 31, 2025. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.…
On January 1, 2020, Ivanhoe Company leased equipment to Flynn Corporation. The following information pertains to this lease. 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $7,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $160,000, and its cost is $120,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Ivanhoe set the annual rental to ensure a 6% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable. Both the lessor and the lessee’s accounting periods end on December 31.Click here to view factor tables.(For calculation purposes,…
On January 1, 2020, Crane Company leased equipment to Flynn Corporation. The following information pertains to this lease: 1. The term of the non-cancelable lease is 6 years. At the end of the lease term, Flynn has the option to purchase the equipment for $1,000, while the expected residual value at the end of the lease is $9,000. 2. Equal rental payments are due on January 1 of each year, beginning in 2020. 3. The fair value of the equipment on January 1, 2020, is $160,000, and its cost is $140,000. 4. The equipment has an economic life of 8 years. Flynn depreciates all of its equipment on a straight-line basis. 5. Crane set the annual rental to ensure a 6% rate of return. Flynn’s incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. 6. Collectibility of lease payments by the lessor is probable Prepare all the necessary journal entries for Flynn to record the lease on 1/1/ 2020, to record the lease payment on 1/1/2020, to record amortization of the…