None Sosa Co. leased equipment from Extra Finance Inc. on January 1, 20X1. The lease calls for five annual payments of $700,000. Theequipment will be returned to Extra at the end of the lease term. The payments are due on January 1 of each year beginning onJanuary 1, 20X1. Sosa's incremental borrowing rate is 11%. The interest rate implicit in the lease payments is 10% and is known toSosa. The present value of lease payments at the inception of the lease and before the first annual payment is $2,918,902. The lease isappropriately accounted for as a finance lease by Sosa. Sosa uses the straight-line method of depreciation for all plant assets.Sosa's adjusting journal entries at December 31, 20X2 for the leased asset and lease liability will includeO a credit to Lease Liability for $700,000.O a debit to Depreciation Expense for $583,780.O a debit to Lease Liability for $221,890.O a debit to Interest Expense for $221,890.

Certainly! Let's break down the adjusting journal entries for Sosa Co.'s leased asset and lease…

Answered: Sosa Co. leased equipment from Extra…

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 1 January 20X1, Dynamic entered into a three year lease for a lorry. Lease payments are $10,000 per year for the first two years and $15,000 for the third year. All payments are due at the end of the year. The present value of the lease payments was $31,552, and Dynamic incurred initial direct costs of $3,000. Dynamic's rate of borrowing is 5%. Prepare extracts from Dynamic's financial statements in respect of the lease agreement for the year ended 31 December 20X1.
On June 30, 2018, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The leaseagreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year leaseterm, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc. at a cost of $3 million. Required:1. What amounts related to the lease would IC report in its balance sheet at December 31, 2018 (ignore taxes)?2. What amounts related to the lease would IC report in its income statement for the year ended December 31,2018 (ignore taxes)?
Pharoah Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Pharoah. The six-year lease requires payment of $162000 at the beginning of each year, including $24200 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor’s implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Pharoah should record the leased asset at $660171. $808819. $776108. $687995.
Cullumber Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Cullumber. The six-year lease requires payment of $171000 at the beginning of each year, including $25100 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 11%; the lessor’s implicit rate is 9% and is known by the lessee. The present value of an annuity due of 1 for six years at 11% is 4.69590. The present value of an annuity due of 1 for six years at 9% is 4.88965. Cullumber should record the leased asset at
On June 30, 2018, Georgia-Atlantic, Inc. leased a warehouse facility from IC Leasing Corporation. The leaseagreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year leaseterm, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recordedon a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3 million.Required:1. Determine the present value of the lease payments at June 30, 2018 (to the nearest $000) that GeorgiaAtlantic uses to record the right-of-use asset and lease liability.2. What amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31,2018 (ignore taxes)?3. What amounts related to the lease would Georgia-Atlantic report in its income statement for the year endedDecember 31, 2018 (ignore taxes)?
ABC Inc. leases equipment for 10 years. The annual lease payment is $8,000. The interest rate for a 10-year collateralized loan for ABC is 8%. Which of the following is correct? I The expenses related to the lease in year 1 will be greater if the lease is accounted for as a finance lease than if the lease is accounted for as an operating lease. II The total expenses over the 10-year life of the lease if the lease is accounted for as a finance lease will equal the total expenses over the 10-year life of the lease if the lease is accounted for as an operating lease. III The company will record interest expense if the lease is accounted for as a finance lease but not if the lease is accounted for as an operating lease. Select one: a. I, II and III b. I and II c. I and III d. II and III e. I
On 1/1/21, Hall Inc entered into a lease agreement with Oates Co. Hall leased a machine from Oates for 9 years. The estimated useful life of the machine is 9 years. At the end of the 9 year lease term, ownership of the machine will transfer back to Oates. The lease agreement calls for annual payments of $150,000, to begin on 1/1/21. The borrowing rate is 10%. The present value of the lease payments is $949,500. Show all computations. Prepare a lease amortization table for 1/1/21, 1/1/22 and 1/1/23.. Prepare journal entries for Oates (lessor sales type lease) for 1/1/21, 12/31/21, 1/1/22, 12/31/22 &1/1/23.
On 1 January 20X6 Fellini hired a machine under a finance lease. The cash price of the machine was $3.5 million and the present value of the minimum lease payments was $3.3 million. Instalments of $700,000 are payable annually in advance with the first payment made on 1 January 20X6. The interest rate implicit in the lease is 6%. What amount will appear under non-current liabilities in respect of this lease in the statement of financial position of Fellini at 31 December 20X7? A $1,479,000 B $2,179,000 C $1,702,000 D $2,266,000
On January 1, 20x1, ABC Co, entered into a 4-year lease agreement with XYZ, Inc. for industrial equipment. Lease payment is P100,000 payable annually starting on January 1, 20x1. ABC knows that the lessor expects a 10% return on the lease. ABC has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 5 years and a residual value of P25,000. The lease agreement contained a purchase option at P50,000 exercisable at the end of the lease term. It is reasonably certain as of inception of the lease that ABC will exercise the option in the future. ABC uses the straight line method of depreciation. Requirements: a.) Provide the journal entries. b.) Determine the carrying amounts of the right-of-use asset and lease liability on December 31, 20x1.
On March 31, 20x1, TRUST CO. (customer)enters into a 4 -year lease of equipment with FAITH CO. ( Supplier). The annual rent is P220,000, payable at the end of each year . The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. The relevant value factors are as follows: PV of an ordinary annuity of P1@10%, n=4 ...... 3.16987 PV of an ordinary annuity of P1@12%, n=4 ....... 3.03735 How much is the lease liability to be recognized by TRUST CO. on initial recognition? A. P880,000 B. P697,371 C. P523,029 D. P702,345
On June 30, Year 1, a company signs a lease requiring quarterly payments each year for the next five years. Each of the 20 quarterly payments is $29,122.87, with the first lease payment beginning September 30. The company’s normal borrowing rate is 6%. Use PVA of $1. (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)Required: What is the PV of lease payment. Record the lease on June 30, year 1.
On March 31, 20x1, TRUST CO. (customer)enters into a 4 -year lease of equipment with FAITH CO. ( Supplier). The annual rent is P220,000, payable at the end of each year . The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. The relevant value factors are as follows: PV of an ordinary annuity of P1@10%, n=4 ...... 3.16987 PV of an ordinary annuity of P1@12%, n=4 ....... 3.03735 1.How much is the lease liability to be recognized by TRUST CO. on initial recognition? 2.Assume that the lease in No. 2 is a A)finance lease. How much is the net investment in the lease to be recognized by FAITH CO. on initial recognition? B) Assume that the lease is an operating lease . How much is the lease ( rent) income in 20x2?

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