
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Edom Company, the lessor, enters into a lease with Davis Company to lease equipment to Davis 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 annual rental receipts of $100,000 to be made in advance at the beginning of each year. |
2. | The equipment costs $313,000. The equipment has an estimated life of 6 years and, at the end of the lease term, has a residual value of $20,000 which is guaranteed by Davis Company (the lessee). |
3. | Davis agrees to pay all executory costs directly to a third party. |
4. | The interest rate implicit in the lease is 14%. |
5. | The initial direct costs are insignificant and assumed to be zero. |
6. | It is probable that Edom will collect the lease payments. |
Required:
1. | Next Level Assuming that the lease is a sales-type lease, calculate the selling price. |
2. | Prepare a table summarizing the lease receipts and interest income earned by Edom. |
3. | Prepare |
Expert Solution

This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution
Trending nowThis is a popular solution!
Step by stepSolved in 4 steps with 3 images

Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- On December 31, 2019, Marin Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Marin to make annual payments of $8,566 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Marin uses the straight-line method of depreciation for all of its plant assets. Marin’s incremental borrowing rate is 4%, and the lessor’s implicit rate is unknown.Click here to view factor tables. https://education.wiley.com/content/Kieso_Intermediate_Accounting_17e/media/simulations/interest_rate_tables.pdf a) Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.) Present value of the lease payments $enter the Present value…arrow_forwardGlaus Leasing Company agrees to lease equipment to Jensen Corporation on January 1, 2020. The following information relates to the lease agreement. 1. The term of the lease is 7 years with no renewal option, and the machinery has an estimated economic life of 9 years. 2. The cost of the machinery is $525,000, and the fair value of the asset on January 1, 2020, is $700,000. 3. At the end of the lease term, the asset reverts to the lessor and has a guaranteed residual value of $50,000. Jensen estimates that the expected residual value at the end of the lease term will be $50,000. Jensen amortizes all of its leased equipment on a straight-line basis. 4. The lease agreement requires equal annual rental payments, beginning on January 1, 2020. 5. The collectibility of the lease payments is probable. 6. Glaus desires a 5% rate of return on its investments. Jensen's incremental borrowing rate is 6%, and the lessor's implicit rate is unknown. Instructions (Assume the accounting period ends on…arrow_forwardOn 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 are $39,200, payable at the beginning of each year. • The interest rate implicit in the lease is 11%. • 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 lessor is $145,500, and the fair value is approximately $223,900. • 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 $39,200 discounted at…arrow_forward
- Drew Company leased equipment from Biggs Leasing on January 1, 2021. The lease term is for ten (10) years with equal annual rental payments of $8,000 at the beginning of each year. In addition, Drew has the option to purchase the equipment at the end of the lease term for $5,000. It is reasonably certain that Drew will exercise this purchase option. At the outset of the lease term the equipment has a useful ife of twelve (12) years and a fair value of $56,000. The implicit rate of the lease is not known to Drew Drew's incremental borrowing rate is 12% A. Calculate the amount that Drew should record for the right-of-use asset and the lease liability. (Round to the nearest dollar. To get partial credit, show your calculations.) B. Prepare the journal entries that Drew should make on January 1, 2021 to 1) record the lease and to 2) record the first lease payment For the togibiarrow_forwardOn January 1, 2019, Intouch Corp. signed a five-year non-cancelable lease for machine with UWMA Company. The terms of the lease called for Intouch to make annual payments of P86,680 at the beginning of each year starting January 1, 2019. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of five-year lease term. Intouch uses straight-line method of depreciation for all of its fixed assets. The implicit rate of the contract which is known by Intouch is 10%. The fair value of the machine on January 1, 2019 is P392,490. Intouch incurred P10,000 to install the machine. Intouch has an obligation to restore the machine to a condition suitable for use at the end of the lease term. Estimated cost of restoration is P20,000. (Use four decimal places for the PV factor) Applying IFRS 16, how much is the current and the non-current portion of the liability to be presented…arrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education


Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,

Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON

Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education

Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education