Three different lease transactions are presented below for Blossom Enterprises. Assume that all lease transactions start on January 1,2024. Blossom does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each ofthe leases is paid at the beginning of each year. Blossom Enterprises prepares its financial statements using ASPE.Lease termEstimated economic lifeYearly rental paymentFair market value of leased assetPresent value of lease rental paymentsInterest rateDateJan. 1Dec. 31 vJan. 1Account TitlesAssume that Blossom Enterprises has purchased the vehicle for $72,600 instead of leasing it and that the amount borrowed was$72,600 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. (List all debit entries before creditentries. Credit account titles are automatically indented when the 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. Record entries in the order displayed in the problem statement.)Equipment Rental ExpenseManufacturingEquipment5 years15 years$12,000$84,000$54,180Cash(To record interest payment.)3.5%(To record depreciation expense.)Vehicles6 years7 years$12,840$72,600$67,3084%OfficeEquipment3 years6 years$3,330$15,000$8,5808%Debit12,000Credit12,000

Journal entries refer to the recording of business transactions in the debit and credit format that…

Three different lease transactions are presented below for Blossom Enterprises. Assume that all lease transactions start on January 1 2024. Blossom does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Blossom Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $12,000 $84,000 $54,180 3.5% Office Equipment Vehicles 6 years 3 years 7 years 6 years $12,840 $3,330 $72,600 $15,000 $67,308 $8,580 4% 8%

Three different lease transactions are presented below for Blossom Enterprises. Assume that all lease transactions start on January 1 2024. Blossom does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Blossom Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $12,000 $84,000 $54,180 3.5% Office Equipment Vehicles 6 years 3 years 7 years 6 years $12,840 $3,330 $72,600 $15,000 $67,308 $8,580 4% 8%

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 1E: Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a...

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Use the information in RE20-3. 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 make payments on December 31 each year. Also assume that Richie had purchased the equipment at a cost of 200,000.
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. Assume that Garvey is required to make payments on December 31 each year.
Lessee and Lessor Accounting Issues The following information is available for a noncancelable lease of equipment entered into on March 1, 2019. The lease is classified as a sales-type lease by the lessor (Anson Company) and as a finance lease by the lessee (Bullard Company). Assume that the lease payments are nude at the beginning of each month, interest and straight-line depreciation are recognized at the end of each month, and the residual value of the leased asset is zero at the end of a 3-year life. Required: 1. Record the lease (including the initial receipt of 2,000) and the receipt of the second and third installments of 2,000 in Ansons accounts. Carry computations to the nearest dollar. 2. Record the lease (including the initial payment of 2,000), the payment of the second and third installments of 2,000, and monthly depreciation in Bullards accounts. The lessee records the lease obligation at net present value. Carry computations to the nearest dollar.
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.
Lessor Accounting with Guaranteed Residual Value Use the information for Edom Company in E20-8, except that the residual value was guaranteed by Davis Company (the lessee). Required: 1. Assuming that the lease is a sales-type lease, calculate the selling price. 2. Prepare a table summarizing the lease receipts and interest income earned by Edom. 3. Prepare journal entries for Edom tor the years 2019 and 2020.
Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
Which of the following statements regarding the new accounting rules, which take effect in 2019, for leases is false? If the lease term is one year or longer, a liability must be recognized. If the lease term is less than one year, an asset must be recognized. The new lease accounting rules will result in more assets and liabilities being recognized on the balance sheet. Leasing will likely remain popular under the new lease accounting rules because leases do not require a large initial outlay of cash.
Lessee Accounting Issues Timmer Company signs a lease agreement dated January 1, 2019, that provides for it to lease equipment from Landau Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: The lease is noncancelable and has a 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 directly to a third party on December 1 of each year. In 2019, these were insurance, 3,760; property taxes, 5,440. In 2020: 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. Timmers 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 Timmer at the inception of the lease. (Round to the nearest dollar.) 2. Prepare a table summarizing the lease payments and interest expense. 3. Prepare journal entries on the books of Timmer for 2019 and 2020. 4. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the present value of next years payment approach to classify the finance lease obligation between current and noncurrent. 5. Next Level Prepare a partial balance sheet in regard to the lease for Timmer for December 31, 2019. Use the change in present value approach to classify the finance lease obligation between current and noncurrent.
Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.
Three different lease transactions are presented below for Sunland Enterprises. Assume that all lease transactions start on January 1, 2024. Sunland does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Sunland Enterprises prepares its financial statements using ASPE Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Date Account Titles Manufacturing Equipment 5 years 15 years $17,400 $121,800 (To record interest payment) Texthonk and Media $78.564 3.5% (To record depreciation expense) Office Equipment 6 years 3 years 7 years 6 years $18,600 $4,860 $105,600 $21,750 $12.522 Assume that Sunland Enterprises has purchased the vehicle for $105.600 instead of leasing it and that the amount borrowed was $105,600 at 8% Interest, with interest payable at the end of each year, Prepare the…
Three different lease transactions are presented below for Pharoah Enterprises. Assume that all lease transactions start on January 1, 2024. Pharoah does not receive title to the properties, either during the lease term or at the end of it. The yearly rental for each of the leases is paid at the beginning of each year. Pharoah Enterprises prepares its financial statements using ASPE. Lease term Estimated economic life Yearly rental payment Fair market value of leased asset Present value of lease rental payments Interest rate Manufacturing Equipment 5 years 15 years $16,800 $117,600 $75,852 3.5% Office Equipment 6 years 3 years 7 years 6 years $18,000 $4,680 $102,000 $21,000 $94,356 $12,060 Vehicles 4% 8% Assume that Pharoah Enterprises has purchased the vehicle for $102,000 instead of leasing it and that the amount borrowed was $102,000 at 8% interest, with interest payable at the end of each year. Prepare the entries for 2024. (List all debit entries before credit entries. Credit…