Meg Company leased equipment from Wee Company on July 1, 2021 for an eight-year period expiring June 30, 2029. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest contemplated by Meg and Wee is 10%. The cash selling price of the equipment is P3,520,000 and the cost is P2,800,000. The lease is appropriately recorded as a sales type lease.

Meg Company leased equipment from Wee Company on July 1, 2021 for an eight-year period expiring June 30, 2029. Equal payments under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest contemplated by Meg and Wee is 10%. The cash selling price of the equipment is P3,520,000 and the cost is P2,800,000. The lease is appropriately recorded as a sales type lease.

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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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 January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
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?
Maya Company leased equipment from Waya Company on July 1, 2020 for an eight -year period expiring June 30, 2028. Equal payment under the lease are P600,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest contemplated by Maya and Waya is 10%. The cash selling price of the equipment is P3,520,000 and the carrying amount is P2,800,000. The lease is appropriately recorded as a sales type lease. What amount of profit on the sale should be recorded for year ended December 31, 2020?
Kizaru Company leased equipment to Fujitora Company on January 1, 2020 for an eight-year period expiring January 1, 2028. Equal payments under the lease are P 600,000 and are due on January 1 of each year. The first payment was made on January 1, 2020. The rate of interest contemplated is 10%. The cash selling price of the equipment is P 3,520,000, and the cost of the equipment is P 2,800,000. Kizaru Company paid initial direct costs of P 50,000 in negotiating and arranging the lease. The lease is appropriately recorded as a sales type lease. Required: Prepare journal entries on the books of Kizaru Company for 2020 and 2021.
ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30, 2030. Equal annual payments under the lease are P80,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest implicit in the lease is 9%. The cash selling price of the equipment is P560,000 and the cost of the equipment on ABC's accounting records was P496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by ABC, what is the amount of profit on the sale and the interest revenue that ABC would record for the year ended December 31, 2020? A. P64,000 and P50,400 B. P64,000 and P43,200 C. P64,000 and P21,600 D. P0 and P0
On July 1, 2020, Yum Company leased equipment to Burger Company for an 8-year period. Equal payments under the lease are P600,000 and are due on July 1 each year. The first payment was made on July 1, 2020. The interest rate contemplated by Yum and Burger is 10%. The cash selling price of the equipment is P3,520,000 and the cost of the equipment on Yum Company's accounting records is P2,800,000. The lease is appropriately recorded as a sales-type lease. 1. What amount of profit on sale should be recognized for the year ended December 31, 2020? 2. Using Yum Company's data, what amount of interest revenue should be recorded for the year ended December 31, 2020?
ABC Company leased equipment to XYZ Company on July 1, 2020, for a ten-year period expiring June 30, 2030. Equal annual payments under the lease are P80,000 and are due on July 1 of each year. The first payment was made on July 1, 2020. The rate of interest implicit in the lease is 9%. The cash selling price of the equipment is P560,000 and the cost of the equipment on ABC's accounting records was P496,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by ABC, what is the amount of profit on the sale and the interest revenue that ABC would record for the year ended December 31, 2020? *
On January 1, 2021, Worcester Construction leased International Harvester equipment from Newton LeaseCorp. Newton LeaseCorp purchased the equipment from Wellesley Harvester at a cost of $958,158. Worcester's borrowing rate for similar transactions is 10%.The lease agreement specified four annual payments of $200,000 beginning January 1, 2021, the beginning of the lease, and on each December 31 thereafter through 2023. The useful life of the equipment is estimated to be six years. The present value of those four payments at a discount rate of 10% is $697,370.On January 1, 2023 (after two years and three payments), Worcester and Newton agreed to extend the lease term by two years. The market rate of interest at that time was 9%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare the appropriate entries for Worcester Construction on January 1, 2023, to adjust its lease liability for the lease…
Pye Company leased equipment to the Polan Company on July 1,2025 , for a ten-year period expiring June 30,2036 . Equal annual payments under the lease are$240,000and are due on July 1 of each year. The first payment was made on July 1, 2025. The rate of interest contemplated by Pye and Polan is9%. The lease receivable before the first payment is$1,680,000and the cost of the equipment on Pye's accounting records was$1,488,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Pye, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December31,2025?
Zinc Co. leased equipment from Helium Company on July 1, 2018 for an 8-year period expiring June 30, 2026. Equal payments under the lease areP600,000 and are due on July 1 of each year. The first payment was madeon July 1, 2018. The rate of interest contemplated by Zinc and Helium is10%. The cash selling price of the equipment is P3,520,000 and the cost ofthe equipment on Helium's accounting records is P2,800,000. The lease isappropriately recorded as sales-type lease. What is the amount of interestrevenue that Helium should record for the year ended December 31, 2018?
Crane Company leased machinery to Stine Company on July 1, 2021, for a 10-year period expiring June 30, 2031. Equal annual payments under the lease are $249000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest used by Crane and Stine is 8%. The lease receivable before the first payment is $1740000 and the cost of the machinery on Crane’s accounting records was $1540000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Crane, what amount of interest revenue would Crane record for the year ended December 31, 2021? $139200 $119280 $59640 $0