Shiba Company leased an office to Cate Company for a five- year term beginning January 1, 2020. Under the terms of the operating lease, rent for the first year is Php800,000 and rent for years 2 through 5 is Php1,250,000 per annum. However, as an inducement to enter the lease, Shiba granted Cate the first six months of the lease rent-free.

Shiba Company leased an office to Cate Company for a five- year term beginning January 1, 2020. Under the terms of the operating lease, rent for the first year is Php800,000 and rent for years 2 through 5 is Php1,250,000 per annum. However, as an inducement to enter the lease, Shiba granted Cate the first six months of the lease rent-free.

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...

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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.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
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.
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.
SNOWMAN Company leased office premises to JACK FROST Inc. for a 5-year term beginning January 2, 2021. Under the terms of the operating lease, rent for the first year is P80,000 and rent for years 2 through 5 is P125,000 per annum. However, as an inducement to enter the lease, SNOWMAN granted JACK FROS the first six months of the lease rent-free. JACK FROST also paid a lease bonus of P60,000. 1. In its December 31, 2021 income statement, what amount should SNOWMAN report as rental income? a. ₱ 128,000b. ₱ 120,000 c. ₱ 116,000 d. ₱ 52,000 2. How much rent receivable should be recognized by SNOWMAN in 2021? a. ₱ 64,000 b. ₱ 76,000 c. ₱ -0 - d. ₱ 68,000 e. ₱ 80,000
ABC Company leases a machinery from XYZ Company under a twelve-month operating lease. As an inducement to enter the lease, XYZ Company grants ABC free rent for the first two months. The lease is effective September 1, 2020 and provides for monthly rental of P12,000 to begin on November 1, 2020. 1.Compute for the rent expense for 2021 2.Determine the total net income to be recognized by the Lessor for the year 2020 as a result of this lease.
As an inducement to enter a lease, CEE Company, a lessor, grants ABC Management Corporation, aleaseholder, nine months of free rent under a two-year operating lease for its office furniture and equipment.The lease is effective on Feb. 1, 2021 and provides for monthly rental of ₱30,000 to begin November 1, 2021. If the lease is considered “Low value lease”, what amount of accrued rent should CEE Company report in its December 31, 2021 statement of financial position?
Wall Co. leased office premises to Fox, Inc. for a five-year term beginning January 2, 20x9. Under the terms of the operating lease, rent for the first year is P8,000 and rent for years 2 through 5 is P12,500 per annum. However, as an inducement to enter the lease, Wall granted Fox the first six months of the lease rent-free. In its December 31, 20x9, balance sheet, what amount should Wall report as rent receivable?
On January 1, 2021, Ehr Company leased a building to Dent Corporation for a ten-year term at an annual rental of P60,000. At inception of the lease, Ehr received P240,000 covering the first two years' rent of P120,000 and a security deposit of P120,000. This deposit will not be returned to Dent upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. 1. What portion of the P240,000 should be shown as a non-current liability in Ehr's December 31, 2021 balance sheet?
Wall Co. leased office premises to Fox, Inc. for a five-year term beginning January 2, 20x9. Under the terms of the operating lease, rent for the first year is P8,000 and rent for years 2 through 5 is P12,500 per annum. However, as an inducement to enter the lease, Wall granted Fox the first six months of the lease rent-free. In its December 31, 20x9, balance sheet, what amount should Fox report as rent payable?
Robin Company leased an office to Franky Company for a five-year term beginning January 1, 2020. Under the terms of the operating lease, rent for the first year is P 800,000 and rent for years 2 through 5 is P 1,250,000 per annum. However, as an inducement to enter the lease, Robin Company granted Franky Company the first six months of the lease rent-free. What amount should be reported as rental income for 2020? Show your solution.