On January 1 of Year 1, Lessee Inc. leased property at a semiannual payment of $105,000, payable each January 1 and July 1 for eight years. The first payment was paid immediately. The leased property, which is new, cost $1,925,000 and has an estimated useful life of 10 years and no guaranteed residual value. The lessee's incremental borrowing rate is 7% and the lessee is not aware of the lessor's implicit rate. Required a. How would Lessee Inc. classify the lease? Finance Lease ✔ b. What balances (account titles and amounts) appear on Lessee Inc.'s balance sheet on December 31 of Year 1 related to the lease? • Note: Round your answers to the nearest whole dollar. Balance Sheet Assets Noncurrent Assets: Right-of-Use Asset Liabilities Current liabilities: Lease Liability Noncurrent liabilities: Lease Liability Income Statement Expenses End of Year 1 Amortization Expense Interest Expense + 1,150,037 ✔ c. What balances (account titles and amounts) appear on Lessee Inc.'s income statement for Year 1 related to the lease? • Note: Round your answers to the nearest whole dollar. + 4 210,000 # 4 + $ $ Year 1 164,291 82,460

On January 1 of Year 1, Lessee Inc. leased property at a semiannual payment of $105,000, payable each January 1 and July 1 for eight years. The first payment was paid immediately. The leased property, which is new, cost $1,925,000 and has an estimated useful life of 10 years and no guaranteed residual value. The lessee's incremental borrowing rate is 7% and the lessee is not aware of the lessor's implicit rate. Required a. How would Lessee Inc. classify the lease? Finance Lease ✔ b. What balances (account titles and amounts) appear on Lessee Inc.'s balance sheet on December 31 of Year 1 related to the lease? • Note: Round your answers to the nearest whole dollar. Balance Sheet Assets Noncurrent Assets: Right-of-Use Asset Liabilities Current liabilities: Lease Liability Noncurrent liabilities: Lease Liability Income Statement Expenses End of Year 1 Amortization Expense Interest Expense + 1,150,037 ✔ c. What balances (account titles and amounts) appear on Lessee Inc.'s income statement for Year 1 related to the lease? • Note: Round your answers to the nearest whole dollar. + 4 210,000 # 4 + $ $ Year 1 164,291 82,460

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
Forrest, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $20,000 from United Corporation. The agreement stipulates the following. Rental payments of $4,638 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. Forrest must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year. Forrest must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. Forrest paid legal fees of $1,000 in executing the lease. Assuming Forrest's incremental borrowing rate is 8% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Forrest.
Blossom, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $25,000 from Crane Corporation. The agreement stipulates the following. Rental payments of $5,599 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. Blossom must reimburse Crane each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $700, though these costs vary from year to year. Blossom must make a payment of $500 with the rental payment each period to cover the insurance Crane has on the warehouse. Blossom paid legal fees of $1,000 in executing the lease. Assuming Blossom's incremental borrowing rate is 6% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Blossom. (List all debit entries before credit entries. Credit account titles are automatically indented when the…
Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following. ● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. ● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. ● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. ● Shamrock paid legal fees of $3,000 in executing the lease. Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is…
Shamrock, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $40,000 from United Corporation. The agreement stipulates the following. ● Rental payments of $9,435 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. ● Shamrock must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. ● Shamrock must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. ● Shamrock paid legal fees of $3,000 in executing the lease. Assuming Shamrock’s incremental borrowing rate is 9% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Shamrock. (Credit account titles are automatically indented when the amount is…
Windsor, Inc. has entered an agreement to lease an old warehouse with a useful life of 5 years and a fair value of $41,000 from United Corporation. The agreement stipulates the following. . Rental payments of $9,994 are to be made at the start of each year of the 5-year lease. No residual value is expected at the end of the lease. Windsor must reimburse United each year for any real estate taxes incurred for the year. Last year, the cost of real estate taxes was $800, though these costs vary from year to year. Windsor must make a payment of $500 with the rental payment each period to cover the insurance United has on the warehouse. Windsor paid legal fees of $2,500 in executing the lease. Assuming Windsor's incremental borrowing rate is 11% and the rate implicit in the lease is unknown, prepare the journal entry to record the initial lease liability and right-of-use asset for Windsor.
At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a seven-yearoperating lease agreement. The contract calls for quarterly rent payments of $25,000 each. The office buildingwas acquired by Lakeside at a cost of $2 million and was expected to have a useful life of 25 years with no residual value. What will be the effect of the lease on Lakeside’s earnings for the first year (ignore taxes)?
On January 1, 20X0, an entity leased an equipment for four years at an annual rental of $170,000 payable at the end of each year. The estimated useful life of the equipment is four years. The present value factor of an ordinary annuity of 1 for four years of an implicit rate of 12% is 3.0373. The lease provides for a transfer of ownership of the equipment to the lessee at the end of the lease term. Compute for the depreciation expense for the right of use of asset for the year ended December 31, 20x0.
Happy Company purchased a packing machine intended for leasing at a cost of P330,000. The machine was leased to Great Company on January 1, 2021, at an annual rental of P58,860 payable in advance over a period of 10 years. The lease qualifies as a direct financing lease. There is no expected residual value for the asset. Implicit interest rate is 16%. Happy Company uses the calendar year. What is the amount of interest revenue recognized in profit or loss by Happy Company for the years 2021 and 2022? A. P43,382 and P40,906 B. P52,800 and P51,830 C. P43,832 and P40,609 D. P52,800 and P51,380
At the beginning of the current year, a company leased computer equipment to another company 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 P3,234,000. The present value of an annuity due of 1 at 8% for 5 years is 4.312.What is the interest revenue for the current year?
Lessor CBA, Inc. leased a machine to lessee DF Co. The lease is noncancelable and requires DF to pay $6,000 per year, payable in advance, over a four-year period. CBA’s implicit interest rate (known to DF) is 6 percent. The lease term begins on January 1, 2020. The machine’s economic life is 7 years. The machine's book value is $26,000 and fair value $30,000, with a guaranteed residual value of $10,000. The collectability of the lease payments is probable for the lessor. (Note: Present value of an ordinary annuity of 1 for 4 periods at 6% is 3.46511, of an annuity due of 1 for 4 periods at 6% is 3.67301. Present value of 1 for 4 periods at 6% is 0.79209). Notes: Read carefully and follow strictly so that Bb can grade you correctly! 1. Use comma in numbers, one thousand is 1,000, not 1000. No $ sign. No positive or negative sign. 2. If no entry is required, write N/A. 3. Only use the following accounts: ROU asset, Lease liability, Depreciation expense, Interest expense, Cash, CGS,…
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…