None On January 1, 2025, Splish Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at thebeginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortizedon a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Splish's incremental borrowingrate is 7%, and the implicit rate in the lease is 6%, which is known by Splish. Title to the equipment transfers to Splish at the end of thelease. The asset has an estimated useful life of 5 years and no residual value.Click here to view factor tables.(f)What is the value of the lease liability if Splish also agreed to pay the fixed annual insurance on the equipment of $2,000 at thesame time as the rental payments? (Round answers to O decimal places, eg. 5,275.)Lease liability $

PV=Pmt×(1−(1+r)^−n/r)×(1+r) Where:PV is the present value of the annuity due,Pmt is the annual…

Answered: On January 1, 2025, Splish Company…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 1P

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On January 1, 2025, Splish Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Splish's incremental borrowing rate is 7%, and the implicit rate in the lease is 6%, which is known by Splish. Title to the equipment transfers to Splish at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (f) What is the value of the lease liability if Splish also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round answers to O decimal places, eg. 5,275.) Lease liability $
On January 1, 2025, Bridgeport Company contracts to lease equipment for 5 years, agreeing to make a payment of $128,104 at the beginning of each year, starting January 1, 2025. The leased equipment is to be capitalized at $572,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Bridgeport's incremental borrowing rate is 7%, and the implicit rate in the lease is 6%, which is known by Bridgeport. Title to the equipment transfers to Bridgeport at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.
On January 1, 2022, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2022. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a straight-line basis, and the obligation is to be reduced on an effective-interest basis. Cage's incremental borrowing rate is 6%, and the company knows that the implicit rate in the lease is 5%. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 8 years and no residual value. Instructions a. Explain the probable relationship of the $550,000 amount to the lease arrangement. b. Prepare the journal entry or entries that Cage should record on January 1, 2022. c. Prepare the journal entries to record depreciation of the leased asset and interest expense for the year 2022. d. Prepare the journal entry to record the lease payment of January 1, 2023, assuming reversing entries are…
On January 1, 2020, Wildhorse Company contracts to lease equipment for 5 years, agreeing to make a payment of $151,860 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $623,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective interest basis. Wildhorse's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Wildhorse. Title to the equipment transfers to Wildhorse at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables. (b) Prepare the journal entries that Wildhorse should record on January 1, 2020. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts Round present value factor calculations to 5 decimal places, eg.…
On January 1, 2020, Marin Company contracts to lease equipment for 5 years, agreeing to make a payment of $150,642 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $618,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Marin's incremental borrowing rate is 6%, and the implicit rate in the lease is 11%, which is known by Marin. Title to the equipment transfers to Marin at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables.
On January 1, 2020, Sarasota Company contracts to lease equipment for 5 years, agreeing to make a payment of $140,532 at the beginning of each year, starting January 1, 2020. The leased equipment is to be capitalized at $586,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Sarasota’s incremental borrowing rate is 6%, and the implicit rate in the lease is Unresolved%, which is known by Sarasota. Title to the equipment transfers to Sarasota at the end of the lease. The asset has an estimated useful life of 5 years and no residual value.Click here to view factor tables. Prepare the journal entries that Sarasota should record on January 1, 2020. Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2020. Prepare the journal entry to record the lease payment of January 1, 2021, assuming reversing entries are not made. What amounts…
On January 1, 2019, Cage Company contracts to lease equipment for 5 years, agreeing to make a payment of $120,987 at the beginning of each year, starting January 1, 2019. The leased equipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Cage's incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Cage. Title to the equipment transfers to Cage at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Instruction a. Explain the probable relationship of the $550,000 amount to the lease arrangement.
On January 1, 2020 Warner Company contracts to lease equipment for 5 years, agreeing tomake a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leasedequipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Warner'sincremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known byWarner. Title to the equipment transfers to Warner at the end of the lease. The asset has anestimated useful life of 5 years and no residual value. 4. Prepare the journal entry to record the lease payment of January 1, 2021, assumingreversing entries are not made.5. What amounts will appear on the lessee's December 31, 2020, balance sheet relative tothe lease contract?6. How would the value of the lease liability in part 2 change if Warner also agreed to paythe fixed annual insurance on the equipment of $2,000 at the same time as the…
On January 1, 2020 Warner Company contracts to lease equipment for 5 years, agreeing tomake a payment of $120,987 at the beginning of each year, starting January 1, 2020. The leasedequipment is to be capitalized at $550,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Warner'sincremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known byWarner. Title to the equipment transfers to Warner at the end of the lease. The asset has anestimated useful life of 5 years and no residual value.1. Explain the probable relationship of the $550,000 amount to the lease arrangement.2. Prepare the journal entry or entries that Warner should record on January 1, 2020.3. Prepare the journal entries to record amortization of the leased asset and interestexpense for the year 2020.4. Prepare the journal entry to record the lease payment of January 1, 2021, assumingreversing entries are not…
On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $468,683 over a five-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's Incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Incorporated at a cost of $3.8 million. 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. What amount related to the lease would IC report in its balance sheet on December 31, 2024 (Ignore taxes)? 2. What amount related to the lease would IC report in its income statement for the year ended December 31, 2024 (Ignore taxes)? Note: For all requirements, enter your answers in whole dollars and not in millions. Round the…
On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,224 over a three-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 9%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Incorporated at a cost of $4.2 million. 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. What amount related to the lease would IC report in its balance sheet on December 31, 2024 (ignore taxes)? 2. What amount related to the lease would IC report in its income statement for the year ended December 31, 2024 (ignore taxes)? Note: For all requirements, enter your answers in whole dollars and not in millions. Round the…
On June 30, 2024, Georgia-Atlantic, Incorporated leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,224 over a three-year lease term (also the asset’s useful life), payable each June 30 and December 31, with the first payment on June 30, 2024. Georgia-Atlantic's incremental borrowing rate is 9%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Incorporated at a cost of $4.2 million. 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) 1. What is the pretax amount of net receivable? 2. What is pretax amount of interest revenue? Ignore taxes for both questions

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