Calculating Lessor Payment-Purchase OptionArmstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. Thelessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at thecommencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract?Note: Enter the answer in dollars and cents, rounded to the nearest penny.• Note: Do not use a negative sign with your answer.Lease payment540 x Calculating Lessor Payment- Unguaranteed Residual ValueMarshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is $160,000 and the lessor expects a rateof return of 5% on the lease contract. Marshall Inc. expects the equipment to have a fair value of $60,000 at the end of 5 years; however, the lessee does not guarantee the residual amount. If the firstannual payment is required at the commencement of the lease, what fixed lease payment should Marshall Inc. charge in order to earn its expected rate of return on the contract?Note: Enter the answer in dollars and cents, rounded to the nearest penny.• Note: Do not use a negative sign with your answer.Lease payment $6,213.53 x

A lease payment is a contractual obligation that is comparable to monthly rent. It gives one party…

Calculating Lessor Payment-Purchase Option Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. The lessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer. Lease payment $ 540x

Calculating Lessor Payment-Purchase Option Armstrong Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The fair value of the equipment is $45,000 and the lessor expects a rate of return of 6% on the lease contract. The lessee has an option to purchase the equipment at the end of the 5-year term at $7,500, which is 20% under the estimated fair value at that time. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Armstrong Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer. Lease payment $ 540x

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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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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 (a price considerably less than the expected fair value) after the initial lease term of 4 years. Why would this lease qualify as a finance lease?
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
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?
Calculating Lessor Payment-Guaranteed Residual Value Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The equipment has a useful life of 10 years. The fair value of the equipment is $28,000 and the lessor expects a rate of return of 8% on the lease contract. The lessee guarantees a residual value of $7,000 at the end of the 8-year lease term. If the first annual payment is required at the end of the first year following the commencement of the lease, what fixed lease payment should Quest Inc. charge in order to earn its expected rate of return on the contract? • Note: Enter the answer in dollars and cents, rounded to the nearest penny. • Note: Do not use a negative sign with your answer. Lease payment $ 4,379.94 *
Marshall Inc. is negotiating an agreement to lease equipment to a lessee for 5 years. The equipment has a useful life of 8 years. The fair value of the equipment is $ 64,000 and the lessor expects a rate of return of 5% on the lease contract. Marshall Inc. expects the equipment to have a fair value of $24,000 at the end of 5 years; however, the lessee does not guarantee the residual amount. If the first annual payment is required at the commencement of the lease, what fixed lease payment should Marshall Inc. charge in order to earn its expected rate of return on the contract? Note: Enter the answer in dollars and cents, rounded to the nearest penny. Note: Do not use a negative sign with your answer.
Carla Vista Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $94,500. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Carla Vista expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places e.g. 5,275.) Date Rent Receipt/ Payment Interest Revenue/ Expense Reduction of Principal Receivable/ Liability 1/1/20 $enter a dollar amount rounded to 0 decimal places…
(Lessor Computations and Entries, Sales-Type Lease with Unguaranteed Residual Value) George Company manufactures a check-in kiosk with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is $278,072, and its unguaranteed residual value at the end of the lease term is estimated to be $20,000. National will pay annual payments of $40,000 at the beginning of each year and all maintenance, insurance, and taxes. George incurred costs of $180,000 in manufacturing the equipment and $4,000 in negotiating and closing the lease. George has determined that the collectibility of the lease payments is reasonably predictable,that no additional costs will be incurred, and that the implicit interest rate is 10%.Instructions(a) Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items.(1) Lease receivable.(2) Sales price.(3) Cost of sales.(b) Prepare a 10-year…
The lessor company signs a lease agreement on December 31, 2020 to lease equipment to the lessee company. The term of the non-cancelable lease is 8 years, and yearly rental payment of $87,000 is required at the end of each year, beginning on December 31, 2020. The agreement specifies that the unguaranteed residual value is $42,000. The lessor expects to earn a return of 10% on its investment. The equipment has a useful economic life of 10 years. What is the amount of lease receivable the lessor will record on December 31, 2020? (You must choose from the following present/future values. Please do not use the tables in the textbook, tables posted on the Blackboard, or values from a financial calculator.) Future Value Single Sum Present Value Single Sum Future Value Ordinary Annuity Present Value Ordinary Annuity Present Value Annuity Due 10%, 8 periods 2.14 0.47 11.44 5.33 5.87 10%, 10 periods 2.59 0.39 15.94 6.14 6.76
Macinski Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $70,000 and fair value of $95,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Macinski expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.
Oriole Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $87,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1,2020. Oriole expects to earn an 8% return onits investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answers to 0 decimal places eg. 5,275.) Rent Receipt/ Payment Interest Revenue/ Expense Reduction of Principal Receivable/ Liability Prepare the journal entry at commencement of the lease for Oriole. (Credit account titles are automatically…
Blossom Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $96,000. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Blossom expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020. Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved. Prepare the journal entry at commencement of the lease for Blossom Prepare the journal entry at commencement of the lease for Sharrer. Prepare the journal entry at commencement of the lease for Sharrer, assuming (1) Sharrer does not know Blossom’s implicit rate (Sharrer’s incremental borrowing rate is 9%), and (2) Sharrer incurs…