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 (considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
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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 (considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
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- The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 18,500 Year 2: $ 23,500 Year 3: $ 28,500 Year 4: $ 33,500 An appropriate discount rate is 7 percentage, yielding a present value of $86,637. b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1? (Round your answer to the nearest dollar amount.) b-5. If the lease is a finance lease, what will be the amortization expense shown on the income statement at the end of year 1? (Round your answer to…Use the 5 lease criteria to determine if the following lease qualifies as a Capital, Financing lease. The Sirap Co leased equipment from the lessee valued at $400,000. The lease contract has payments of $50,000 per year payable at the end of each year for 12 years. The interest rate is at 8%. The lessor will repossess the equipment at the end of the lease term. The leased equipment does not have a bargain purchase option. The leased equipment has an economic useful life of 16 years. Required: use the 5 criteria, like in illustration 15 - 4 to determine if the lease qualifies as a Capital, financing lease.Belardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is 10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year period. The lease does not contain a purchase option. There is no transfer of ownership clause in the contract. Should Belardo account for this lease as an operating or a finance lease? Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is insufficient information to determine if a specific criteria is met, do not check the box for that criteria.) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3.…
- The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1 : $18,000 Year 2: $23,000 Year 3: $28,000 Year 4: $33,000 An appropriate discount rate is 7%, yielding a present value of $84,943. If the lease is an operating lease, what will be the initial value of the right-of-use asset?The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 11,500 Year 2: $ 16,500 Year 3: $ 21,500 Year 4: $ 26,500 An appropriate discount rate is 7 percentage, yielding a present value of $62,927.a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? a-2. If the lease is an operating lease, what will be the initial value of the lease liability? a-3. If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year 1? a-4. If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.)Law Company leased a machine with a fair value of P 1,650,000 for a period of 5 years under a finance lease. The initial direct cost included in negotiating the lease amounted to P 12,500. The present value of the minimum lease payments discounted at the rate implicit in the lease is P 1,584,000. At what amount should the machine be recognized initially by Law Company? Show your solution.
- Dunbar Corporation can purchase an asset for $29,000; the asset will be worthless after 15 years. Alternatively, it could lease the asset for 15 years with an annual lease payment of $2,494 paid at the end of each year. The firm’s cost of debt is 5%. The IRS classifies the lease as a non-tax-oriented lease. What is the net advantage to leasing?Roger Company leases a computer equipment under a direct financing lease. The equipment has no residual value at the end of the lease and the lease does not contain bargain purchase option. The entity wishes to earn 8% interest on a 5-year lease of equipment with a cost of P 3,234,000. The present value of an annuity due of 1 at 8% for 5 years is 4.312. What total amount of interest revenue should be recognized over the lease term? Show your solution.Bird Wing Bedding can lease an asset for 4 years with payments of $22,000 due at the beginning of the year. The firm can borrow at a 6% rate and pays a 25% federal-plus-state tax rate. The lease qualifies as a tax-oriented lease. What is the cost of leasing?
- Suddeth Corporation has entered into a 6 year lease for a building it will use as a warehouse. The annual payment under the lease will be $2,468. The first payment will be at the end of the current year and all subsequent payments will be made at year-ends. If the discount rate is 5%, the present value of the lease payments is closest to (Ignore income taxes.): Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using the tables provided. Multiple Choice O O $14,808 $11,050 $14,103 $12,528Consider the following terms of a lease.1. The lease term is 5 years. The lease is noncancelable and requires equal payments of $50,000 at the beginning of each year, beginning January 1, 2019.2. The leased asset is a standard piece of equipment.3. The cost, and fair value, of the equipment to Lessor at the inception of the lease is $350,000. The equipment has an estimated economic life of 10 years and has a zero estimated residual value at the end of this time.4. There is no guarantee of the residual value by Lessee.5. The lease contains no purchase option and no agreement to transfer ownership at the end of the lease.6. Lessee's incremental borrowing rate is 12% per year. Lessee is not able to determine the interest rate implicit in the lease.7. The present value of an annuity due of 5 payments of $50,000 each at 12% is $201,867.45 (4.037349 × $50,000 = $201,867.45).How does the lessee classify the lease? This is not a lease Sales-type lease Operating lease Finance leaseThe Sirap Co. leased equipment from the Xylo co. with a fair market value of $200,000. The lease contract has payments of $30,000 at the end of each year. The terms are 10 years at 10% interest rate. There is no bargain purchase agreement and the lessor will repossess the equipment. The equipment has a useful life of 15 years. Use the 5 criteria and determine if the lease qualifies as a financing lease.