Derozan Corp. manufactured equipment at a cost of $244273 and leased it to B Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset’s economic life. Equal payments under the lease are $62200 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The implicit rate used by Derozan is 8%. Additional information: Present value of an annuity due of $1 for 8 periods at 8% 6.21 Present value of an annuity due of $1 for 16 periods at 4% 12.12 What amount of selling profit or loss should Derozan report for the year ended December 31, 2019?

Derozan Corp. manufactured equipment at a cost of $244273 and leased it to B Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset’s economic life. Equal payments under the lease are $62200 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The implicit rate used by Derozan is 8%. Additional information: Present value of an annuity due of $1 for 8 periods at 8% 6.21 Present value of an annuity due of $1 for 16 periods at 4% 12.12 What amount of selling profit or loss should Derozan report for the year ended December 31, 2019?

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring payments of 10,000 at the beginning of each year. The machine cost 40,000 and has a useful life of 8 years with no residual value. Kerns implicit interest rate is 10%, and present value factors are as follows: Present value for an annuity due of 1 at 10% for 6 periods4.791 Present value for an annuity due of 1 at 10% for 8 periods5.868 Kern appropriately recorded the lease as a sales-type lease. At the inception of the lease, the Lease Receivable account balance should be: a. 60,000 b. 58,680 c. 48,000 d. 47,910
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
Crane Company leased machinery to Stine Company on July 1, 2021, for a 10-year period expiring June 30, 2031. Equal annual payments under the lease are $249000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest used by Crane and Stine is 8%. The lease receivable before the first payment is $1740000 and the cost of the machinery on Crane’s accounting records was $1540000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Crane, what amount of interest revenue would Crane record for the year ended December 31, 2021? $139200 $119280 $59640 $0
Ball Company leased machinery to Denver Company on July 1, 2021, for a ten-year period expiring June 30, 2031. Equal annual payments under the lease are $250,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest used by Harter and Stine is 9%. The lease receivable before the first payment is $1,750,000 and the cost of the machinery on Ball’s accounting records was $1,550,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Ball, what amount of interest revenue would Ball record for the year ended December 31, 2021? a. $67,500 b. $135,000 c. $157,500 d. $0
Pye Company leased equipment to the Polan Company on July 1,2025 , for a ten-year period expiring June 30,2036 . Equal annual payments under the lease are$240,000and are due on July 1 of each year. The first payment was made on July 1, 2025. The rate of interest contemplated by Pye and Polan is9%. The lease receivable before the first payment is$1,680,000and the cost of the equipment on Pye's accounting records was$1,488,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Pye, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December31,2025?
On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $958,158. Worcester's borrowing rate for similar transactions is 10%.The lease agreement specified four annual payments of $200,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $697,370.On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease…
Torrey Co. manufactures equipment that is sold or leased. On December 31, 2018, Torrey leased equipment to Dalton for a five-year period ending December 31, 2023, at which date ownership of the leased asset will be transferred to Dalton. Equal payments under the lease are P1,100,000 (including P100,000 executorycosts) and are due on December 31 of each year. The first payment was made on December 31, 2018. Collectibility of the remaining lease payments is probable. The lease receivable before the first payment is P3,850,000, and cost is P3,000,000. For the year ended December 31, 2018, what amount of income should Torrey realize from the lease transaction?
Kizaru Company leased equipment to Fujitora Company on January 1, 2020 for an eight-year period expiring January 1, 2028. Equal payments under the lease are P 600,000 and are due on January 1 of each year. The first payment was made on January 1, 2020. The rate of interest contemplated is 10%. The cash selling price of the equipment is P 3,520,000, and the cost of the equipment is P 2,800,000. Kizaru Company paid initial direct costs of P 50,000 in negotiating and arranging the lease. The lease is appropriately recorded as a sales type lease. Required: Prepare journal entries on the books of Kizaru Company for 2020 and 2021.
On January 1, 2020, an entity leased a machinery with the following data: Annual rental payable at the end of each year for P80,000 with a lease term for 6 years and with an implicit rate of 7%. On January 1, 2023, the entity and the lessor agreed to amend the original terms of the lease by reducing the lease payment to P70,000 and increasing the implicit rate to 9%. Compute for the interest expense to be recognize on January 1, 2023. 15,947 18,968 14,696
On December 31, 2019, Beam Company leased equipment to Forth Company for a four-year period ending December 31, 2023. The equipment cost Beam Company P365,760 and has an expected useful life of five years. Its normal sales price is P365,760. The lessee guarantees the residual value of P80,000. Lease payment is due every December 31 and Forth Company made the first payment on December 31, 2019. Beam Company’s implicit interest rate is 10%. 1. How much is the net investment in the lease at December 31, 2020? A. P276,537 B. P214,968 C. P304,191 D. P313,113 2. If the residual value is not guaranteed, how much net investment in the lease shall be recognized on December 31 A. P365,760 B. P356,760 C. P311,210 D. P311,120
Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The lease is properly accounted for as a finance lease by the lessee and as a sales-type lease by the lessor. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2019. The effective interest rate for the lease is 9%. The present value of the payments is $350,000 at the beginning of the new lease. The cost of the equipment on Stovall’s accounting records was $310,000. What amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2019?
ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30, 2030. Equal annual payments under the lease are P80,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest implicit in the lease is 9%. The cash selling price of the equipment is P560,000 and the cost of the equipment on ABC's accounting records was P496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by ABC, what is the amount of profit on the sale and the interest revenue that ABC would record for the year ended December 31, 2020? A. P64,000 and P50,400 B. P64,000 and P43,200 C. P64,000 and P21,600 D. P0 and P0