HP Leasing Company recently leased machinery to Alaska Building Associates. The 5-year lease contract requires rental payments of $29,000 on January 1 of each year. The lease meets at least one of the Group I criteria. The 5% implicit rate on the lease is known to Alaska Building Associates. There is a $5,200 guaranteed residual value by the lessee, which is equal to the expected residual value at the end of the lease term. Therefore, there is no unguaranteed residual asset. Compute the present value of the lease payments for HP Leasing Company and Alaska Building. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use Present value (PV) of the lease payments for HP Leasing Company Present value (PV) of the lease payments for Alaska Building Associates

HP Leasing Company recently leased machinery to Alaska Building Associates. The 5-year lease contract requires rental payments of $29,000 on January 1 of each year. The lease meets at least one of the Group I criteria. The 5% implicit rate on the lease is known to Alaska Building Associates. There is a $5,200 guaranteed residual value by the lessee, which is equal to the expected residual value at the end of the lease term. Therefore, there is no unguaranteed residual asset. Compute the present value of the lease payments for HP Leasing Company and Alaska Building. Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table (Use the present value and future value tables, the formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the formula method, use Present value (PV) of the lease payments for HP Leasing Company Present value (PV) of the lease payments for Alaska Building Associates

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 12P: Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease...

See similar textbooks

Similar questions

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).
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.
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.
Roger Company leases a computer equipment under a direct financing lease. The equipment has no residual value at the end of the lease and the lease does not contain bargain purchase option. The entity wishes to earn 8% interest on a 5-year lease of equipment with a cost of P 3,234,000. The present value of an annuity due of 1 at 8% for 5 years is 4.312. What total amount of interest revenue should be recognized over the lease term? Show your solution.
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: $ 11,500 Year 2: $ 16,500 Year 3: $ 21,500 Year 4: $ 26,500 An appropriate discount rate is 7 percentage, yielding a present value of $62,927. a-5. If the lease is an operating lease, what will be the amortization expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-1. If the lease is a finance lease, what will be the initial value of the right-of-use asset? b-2. If the lease is a finance lease, what will be the initial value of the lease liability? b-3. If the lease is a finance lease, what will be the lease expense shown on the income statement at the end of year 1? (Leave no cells blank – be certain to enter “0” wherever required.) b-4. If the lease is a finance lease, what will be the interest expense shown on the income statement at the end of year 1?…
Integrity Company uses leases as a means of selling equipment. On July 1, 2021, the company leased a machine to a lessee. The cost of the machine to Integrity was P784,500. Annual lease payments are P135,000 and are payable in advance for 12 years. The residual value of the machine at the end of the lease term is P100,000 which is not guaranteed by the lessee. The lessor’s implicit interest rate is 10%. (Round off the PV factor to four decimal places, then do not round off during the computation)How much is the Cost of Sales to be reported by Integrity in 2021?
Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life with $10,000 guaranteed residual value. The rate implicit in the lease (which is known by Pisa, Inc.) is 8%. A. Is it a financing lease or operating lease? Explain why. (You do not need to discuss all five tests). B. What are the main differences between a finance lease and operating lease? C. How much would Tower Company, the lessor, record as an initial receivable? (Hint: think PV testing amount)
Spotify Company entered into a 10-year lease of a commercial space on January 1, 2022. Annual lease payment payable at the beginning of each year amounted to P500,000. The company has paid commissions of P200,000 to Army, a real estate brokerage firm that have helped the company closed the reasonable deal with the lessor. Details found on the signed contract of lease are as follows: Residual value at the end of the lease term (20% is not guaranteed) - P250,000 Purchase option at the end of the lease term - P150,000 Annual property taxes (amount to be shouldered by the lessee) - P50,000 Lessee’s share in annual insurance - P30,000 Annual budgeted repairs and maintenance expenses - P20,000 The cost of dismantling the improvements and fixtures and restoring the commercial space into its original intended use after the end of the lease term is estimated to be at P350,000. Considering the flooding, fault line and deterioration in the vicinity and the current plan to build a cemetery in…
Crane, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $224152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4- year useful life and no salvage value. If Crane, Inc.'s incremental borrowing rate is 11% and the rate implicit in the lease (which is known by Crane, Inc.) is 9%, what is the amount recorded for the leased asset at the lease inception? 9%, 4 periods 11%, 4 periods O $695420 O$791546 O $771914 O $726190 PV Annuity Due 3.53129 3.44371 PV Ordinary Annuity 3.23972 3.10245 Attempts: 0 of 1 used Submit Answer
Garvey Company (the lessee) entered into an equipment lease with Richie Company (the lessor) on January 1 of Year 1. The equipment reverts back to the lessor at the end of the lease, and there is no bargain purchase option. The equipment is not specialized for Garvey. The lease term is 5 years and requires Garvey to make annual payments of $65,949.37 at the end of each year. The discount rate is 10%, which is implicit in the lease. Garvey knows this rate. The fair value of the equipment at the lease inception is $250,000. The present value of an ordinary annuity of five payments of $65,949.37 each at 10% is $250,000. The equipment has an estimated economic life of 7 years and has zero residual value at the end of this time. Straight-line depreciation is used for similar assets. Required: 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…
Sliver Limited leases an equipment from Tesco Limited under the following lease terms. The lease term is 4 years, non-cancelable and requires equal annual rental payments at the beginning of each calendar year starting 1 January 2021. Tesco Limited wants a guarantee that the residual value of the equipment at the end of the lease is at least $26,000. Sliver Limited agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $10,000 at the end of the lease term. The cost of an equipment is $230,000 and the fair value of the equipment is $350,000 on 1 January 2021. The equipment has an economic life of 5 years. Both companies depreciate all their equipment on a straight-line basis. Tesco Limited wants to earn a return of 6% on the lease and collectability of the payment is probable. Sliver Limited's incremental borrowing rate is 8%, and the implicit rate of the lessor is unknown. Required: (Round all amounts to the nearest dollar.)…
Sheridan, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $394152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4-year useful life and no salvage value. If Sheridan, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Sheridan, Inc.) is 8%, what is the amount recorded for the leased asset at the lease inception? PV Annuity Due PV Ordinary Annuity 8%, 4 periods 3.57710 3.31213 10%, 4 periods 3.48685 3.16987 $1409921 $1305483 $1249411 $1374349