On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the capital lease liability should be which of the following? A. $102,500 B. $111,500 C. $112,500 D. $290,000

On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the capital lease liability should be which of the following? A. $102,500 B. $111,500 C. $112,500 D. $290,000

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 5RE: Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the...

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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. 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).
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.
On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease required Blaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. The lease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the 8% interest rate implicit in the lease. In Blaugh's December 31, 2016 balance sheet, the capital lease liability should be which of the following? A. $102,500 B. $111,500 C. $112,500 D. $290,000
On January 1, 2016, Blaugh Co. signed a long-term lease for an office building. The terms of the lease requiredBlaugh to pay $10,000 annually, beginning December 30, 2016, and continuing each year for 30 years. Thelease qualifies as a capital lease. On January 1, 2016, the present value of the lease payments is $112,500 at the8% interest rate implicit in the lease. In Blaugh’s December 31, 2016, balance sheet, the capital lease liabilityshould bea. $102,500b. $111,500c. $112,500d. $290,000
At the beginning of 2016, VHF Industries acquired a machine with a fair value of $6,074,700 by signing a fouryear lease. The lease is payable in four annual payments of $2 million at the end of each year. Required: 1. What is the effective rate of interest implicit in the agreement? 2. Prepare the lessee’s journal entry at the inception of the lease. 3. Prepare the journal entry to record the first lease payment at December 31, 2016. 4. Prepare the journal entry to record the second lease payment at December 31, 2017. 5. Suppose the fair value of the machine and the lessor’s implicit rate were unknown at the time of the lease, but that the lessee’s incremental borrowing rate of interest for notes of similar risk was 11%. Prepare the lessee’s entry at the inception of the lease.
On March 31, 2016, Southwest Gas leased equipment from a supplier and agreed to pay $200,000 annually for 20 years beginning March 31, 2017. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $2,293,984 lease liability. Required: Determine the interest rate implicit in the lease agreement.
Mike Co. entered into a finance lease on January 1, 2016. A third party guaranteed the residual value of the asset under the lease estimated to be P 600,000 on January 1, 2021, the end of the lease term. Annual lease payments are P 500,000 due to each Dec. 31, beginning Dec. 31, 2016. The last payment is due Dec. 31, 2020. The remaining useful life of the asset was six years at the commencement of the lease. Both the lessor and lessee used 10% as the interest rate. The PV of 1 at 1 0% for 5 periods is .62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. REQUIREMENTS: 1. What is the net lease receivable of the lessor at the commencement of the lease? 2.What is the net lease receivable of the lessor at the commencement of the lease?
Low Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…
Low Falls Corporation (lessor) entered into a lease agreement on January 1, 2017, to provide Amazon Fleet Company (lessee) with a piece of machinery. The terms of the lease agreement were as follows. The lease is to be for 3 years with rental payments of $12,400 to be made at the beginning of each year. The machinery has a fair value of $70,010, a book value of $50,000, and an economic life of 7 years. At the end of the lease term, both parties expect the machinery to have a residual value of $40,000, $20,000 of which is guaranteed ($20,000 unguaranteed). The lease does not transfer ownership at the end of the lease term, does not have a bargain purchase option, and the asset is not of a specialized nature. The implicit rate used by Low Falls is 5%, which is known by Amazon Fleet, and collectability of the payments is probable. Amazon Fleet’s incremental borrowing rate is 6%. Assume the lessor depreciates the asset on a cost basis (not fair value). Q: When testing the lease for…
On January 1, 2016, 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 $34,500, payable at the beginning of each year. • The interest rate implicit in the lease is 11%. • Anderson agrees to pay all executory costs and is given an option to buy the equipment for $1 at the end of the lease term, December 31, 2024. • The cost of the equipment to the lessor is $137,000, and the fair retail value is approximately $197,100. • The lessor incurs no material initial direct costs. • The collectibility of the rentals is reasonably assured, and there are no important uncertainties surrounding the amount of unreimbursable costs yet to be incurred by the lessor. • The lessor estimates that the fair value is expected to be significantly greater than $1 at the end of the lease term. The lessor calculates that the present…
Timmer Company signs a lease agreement dated January 1, 2016, that provides for it to lease equipment from Landau Company beginning January 1, 2016. The lease terms, provisions, and related events are as follows: • The lease is noncancelable and has 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 at the end of each year. In 2016, these were insurance, $3,760; property taxes, $5,440. In 2017: 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. Timmer's 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…
On January 1, 2021, Wise Corporation leased equipment to Slim Company. The lease term is eight years. The first payment of $675,000 was made on January 1, 2021. The equipment cost Wise Corporation $3,600,000. The present value of the lease payments is $3,961,183. The lease is appropriately classified as a sales-type lease. suming the interest rate for this lease is 10%, how much interest revenue will Wise record in 2022 on this lease? A. $261,000. B. $293,980. C. $325,350. D. $328,615.