Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $990,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease a. Finance lease: Date Jan. 1, 2023 Account To record the start of the finance lease. Dec. 31, 2023 Dec. 31, 2023 Dec. 31, 2024 Dec. 31, 2024 To record the amortization of leased asset. To record the lease payment. To record the amortization of leased asset. To record the lease payment. > > > > > > > > > > Debit Credit 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $990,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease a. Finance lease: Date Jan. 1, 2023 Account To record the start of the finance lease. Dec. 31, 2023 Dec. 31, 2023 Dec. 31, 2024 Dec. 31, 2024 To record the amortization of leased asset. To record the lease payment. To record the amortization of leased asset. To record the lease payment. > > > > > > > > > > Debit Credit 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter11: Notes, Bonds, And Leases

Section: Chapter Questions

Problem 28E

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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. Assume that Garvey is required to make payments on December 31 each year.
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.
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).
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2016. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2016. Required Assume that the lease is treated as an operating lease. Will the value of the forklift appear on Koffmans balance sheet? What account will indicate that lease payments have been made? Assume that the lease is treated as a capital lease. Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 (1,5104). Prepare the journal entry to record the first lease payment on December 31, 2016. Calculate the amount of depreciation expense for the year 2016. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2016?
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.
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a term of 5 years. The annual rentals are 83,222.92, payable at the end of each year, and provide Landau with a 12% annual rate of return on its net investment. Timmer agrees to pay all executory costs directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: insurance, 3,100; property taxes, 5,330. There is no renewal or bargain purchase option. Timmer estimates that the equipment has a fair value of 300,000, an economic life of 5 years, and a zero residual value. Timmers incremental borrowing rate is 16%, it knows the rate implicit in the lease, and it uses the straightline method to record depreciation on similar equipment. Required: 1. Calculate the amount of the asset and liability of Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
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 Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E - So Co. with the following terms: Annual lease payment: $660,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease.
Accounting for Leases Using Finance and Operating Lease Methods Core Co. leased a piece of manufacturing equipment from E-So Co. with the following terms: Annual lease payment: $770,000 Term of lease: 5 years Interest rate: 4% Lease commences on January 1, 2023 Payments are made on December 31 of each year in the lease term For parts a and b: a. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as a finance lease. b. Prepare journal entries to show the effects for Core Co. for January 1, 2023-December 31, 2024, if the lease is classified as an operating lease. Operating Lease Finance Lease b. Operating lease: Date Jan. 1, 2023 Account To record the start of the operating lease. Dec. 31, 2023 To record the lease payment. Dec. 31, 2023 To record the lease expense. Dec. 31, 2024 To record the lease payment. Dec. 31, 2024 To record the lease expense. > > > > > > > > > > > > Debit Credit
Company A leases equipment from Company B in a finance lease. Lease payments of $3,226 are due quarterly over a 10 year period, with the first payment due July 1, the beginning of the lease. The annual interest rate is 8%. What is the outstanding balance in the Lease Payable account after the second payment? What is the outstanding balance in the Right-of-Use asset account after the second payment?