Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $26,400 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: • The fair value of the equipment is $180,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. • The asset is a standard piece of equipment.

Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $26,400 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: • The fair value of the equipment is $180,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. • The asset is a standard piece of equipment.

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 9RE: Use the information in RE20-3. Prepare the journal entries that Richie Company (the lessor) would...

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).
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.
Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $23,200 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: The fair value of the equipment is $160,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. The asset is a standard piece of equipment. a. Is the lease an operating lease or a financing lease? multiple choice Operating lease Financing lease b. What will be the lease expense shown on the income statement at the end of year 1? c. What will be…
Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $20,000 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: The fair value of the equipment is $140,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. The asset is a standard piece of equipment. a. Is the lease an operating lease or a financing lease? b. What will be the lease expense shown on the income statement at the end of year 1? c. What will be the interest expense shown on the income statement at the end…
I ONLY NEED help with D. Krawczek Company will enter into a lease agreement with Heavy Equipment Co. where Krawczek will make lease payments over the next five years. The lease is cancelable and requires equal annual payments of $23,200 per year beginning on January 1 of the first year. The last payment will be January 1 of year 5, and Krawczek will continue to use the asset until December 31 of that year. Other important information includes the following: The fair value of the equipment is $160,000. The applicable discount rate is an 8 percent annual rate. The economic life of the asset is 10 years. Krawczek does not guarantee the residual value of the asset at the end of the lease, and it does not expect to keep the asset at the end of the term. The asset is a standard piece of equipment. a. Is the lease an operating lease or a financing lease? multiple choice Operating lease Financing lease b. What will be the lease expense shown on the income statement at the end…
Company A has agreed to lease two snow plows from Company B. The lease has the following information: • The lease is for three years, requiring annual payments at the beginning of the year of $24,978 (annuity-due basis) • The snow plows have a fair value at the beginning of the lease of $80,000; an estimated economic life of five years; and a guaranteed residual value of $8,900 • Present value of the slow plows is $72,088 • There are no renewal options. At the end of the lease, the snow plows will be returned to Company A Which test does the lease pass in order to be classified as a finance lease? Transfer of ownership O Present value Purchase option Lease term
Delray Leasing Company signs an agreement on January 1, 2025, to lease equipment to Sheridan Company. The following information relates to this agreement. Assume that the expected residual value at the end of the lease is $27,400, such that the payments are $22,227.36. 1. 2. 3. 4. 5. 6. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated economic life of 6 years. The fair value of the asset at January 1, 2025, is $105,300. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $27,400, none of which is guaranteed. The agreement requires equal annual rental payments of $22,227.36 to the lessor, beginning on January 1, 2025. The lessee's incremental borrowing rate is 6%. The lessor's implicit rate is 5% and is unknown to the lessee. Sheridan uses the straight-line depreciation method for all equipment. Date Account Titles and Explanation (To record the lease) (To…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. ⚫ The lease agreement specified annual payments of $44,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. • The company had the option to purchase the machine on December 30, 2026, for $53,000 when its fair value was expected to be $68,000, a sufficient difference that exercise seems reasonably certain. • The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the…
Federated Fabrications leased a tooling machine on January 1, 2024, for a three-year period ending December 31, 2026. • The lease agreement specified annual payments of $44,000 beginning with the first payment at the beginning of the lease, and each December 31 through 2025. • The company had the option to purchase the machine on December 30, 2026, for $53,000 when its fair value was expected to be $68,000, a sufficient difference that exercise seems reasonably certain. • The machine's estimated useful life was six years with no salvage value. Federated was aware that the lessor's implicit rate of return was 9%. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Required: 1. Calculate the amount Federated should record as a right-of-use asset and lease liability for this finance lease. 2. Prepare an amortization schedule that describes the pattern of interest expense for Federated over the lease term. 3. Prepare the…
Marigold Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $196,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. ● The lease requires payments of $43,896 at the beginning of each year starting January 1, 2019. ● At the end of the lease term, the equipment is to be returned to the lessor. ● Lantus’ implied interest rate is 6%, while Marigold’s borrowing rate is 7%. Marigold uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assume that both companies follow ASPE.Determine the present value of the minimum lease payments. Present value please show me how to do the calculation in exce
Wildhorse Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $199,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. ● The lease requires payments of $45,359 at the beginning of each year starting January 1, 2019. ● At the end of the lease term, the equipment is to be returned to the lessor. ● Lantus’ implied interest rate is 7%, while Wildhorse’s borrowing rate is 8%. Wildhorse uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assume that both companies follow ASPE. (a)Determine the present value of the minimum lease payments Ans 199,000 B.) Prepare Wildhorse’s lease amortization schedule using the effective interest method. (Round answers to 0 decimal places, e.g. 5,275.) Date Payment Interest Principal Balance…
Sarasota Limited has signed a lease agreement with Lantus Corp. to lease equipment with an expected lifespan of eight years, no estimated salvage value, and a cost to Lantus, the lessor of $170,000. The terms of the lease are as follows: ● The lease term begins on January 1, 2019, and runs for 5 years. The lease requires payments of $38,073 at the beginning of each year starting January 1, 2019. At the end of the lease term, the equipment is to be returned to the lessor. Lantus' implied interest rate is 6%, while Sarasota's borrowing rate is 7%. Sarasota uses straight-line depreciation for similar equipment. The year-end for both companies is December 31. Assuming that both companies follow ASPE. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Show Transcribed Text Date Jan. 1, 2019 Dec. 31, 2019 Account Titles and Explanation Equipment Acquired for Lessee (To record purchase of equipment.) (To record…