Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 15, Problem 15.12BE
Uncertain lease payments
• LO15–6
On January 1, Espinoza Moving and Storage leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $10,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. If Espinoza’s revenues exceed a specified amount during the lease term, Espinoza will pay an additional $4,000 lease payment at the end of the lease. Espinoza estimates a 60% probability of meeting the target revenue amount. What amount, if any, should be added to the right-of-use asset and lease liability under the contingent rent agreement?
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Problem 3
On January 1, 2020, Berto Company leased a machinery with an estimated useful life of 8 years.
The contract is a six-year noncancelable lease with a 10% implicit interest rate.
PV of an annuity due of 1 at 10% for six periods
4.7908
PV of 1 at 10% for six periods
0.5645
The lease contains neither a transfer of title to the lessee nor a purchase option.
The lease requires annual payments of P500,000 beginning January 1, 2020.
The entity had a residual value guarantee of P400,000 when the machinery is returned to the lessor
upon the lease expiration.
Required:
1. Prepare a table of amortization of the lease liability and interest expense.
2. Prepare journal entries for 2020 and 2021.
3. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume
the fair value of the asset is P450,000.
4. Prepare journal entry on January 1, 2026 to record the return of the machinery to the lessor. Assume
the fair value of the asset is P300,000.
Problem 4
On January 1, 2021, Twice Company entered into a lease agreement with the following:
Floor space
Annual rental payable at the end of each year
Implicit rate in the lease
1,500 square meters
200,000
12%
12 years
6.1944
Lease term
Present value of an ordinary annuity at 12% for 12 periods
On January 1, 2024, the lessee and the lessor agreed to amend the original terms of the lease with the
following information:
Additional floor space
Increase in rental payable at the end of each year
Implicit rate in lease
Present value of an ordinary annuity of 1 at 10% for 9 periods
2,000 square meters
300,000
10%
5.759
1. What amount should be reported as lease liability on January 1, 20217
2. What amount should be reported as additional lease liability on January 1, 2024?
3. What amount should be reported as total interest expense for 20247
25
Technoid Incorporated sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2024.
The manufacturing cost of the computers was $19 million.
This noncancelable lease had the following terms:
• Lease payments: $3,287,947 semiannually; first payment on January 1, 2024; remaining payments on June 30 and
December 31 each year through June 30, 2028.
• Lease term: 5 years (10 semiannual payments).
• No residual value; no purchase option.
• Economic life of equipment: 5 years.
Implicit interest rate and lessee's incremental borrowing rate: 9% semiannually.
• Fair value of the computers on January 1, 2024: $23 million.
.
What is the outstanding balance of the lease liability in Lone Star's balance sheet on June 30, 2024?
Note: Round your answer to the nearest whole dollar.
Multiple Choice
$17,698,200
Chapter 15 Solutions
Intermediate Accounting, 10 Ed
Ch. 15 - Prob. 15.2QCh. 15 - Prob. 15.3QCh. 15 - Prob. 15.4QCh. 15 - A lessee should classify a lease transaction as a...Ch. 15 - Lukawitz Industries leased non-specialized...Ch. 15 - In accounting for a finance lease/sales-type...Ch. 15 - What is selling profit on a sales-type lease? How...Ch. 15 - At the beginning of an operating lease, the lessee...Ch. 15 - At the beginning of an operating lease, the lessor...Ch. 15 - In accounting for an operating lease, how are the...
Ch. 15 - Briefly describe the conceptual basis for asset...Ch. 15 - In a financing lease, front loading of lease...Ch. 15 - The discount rate influences virtually every...Ch. 15 - A lease that has a lease term (including any...Ch. 15 - A lease might specify that lease payments may be...Ch. 15 - What is a purchase option? How does it affect...Ch. 15 - A six-year lease can be renewed for two additional...Ch. 15 - Culinary Creations leased kitchen equipment under...Ch. 15 - What situations cause us to remeasure a lease...Ch. 15 - Prob. 15.21QCh. 15 - Compare the way a purchase option that is...Ch. 15 - What nonlease costs might be included as part of...Ch. 15 - The lessors initial direct costs often are...Ch. 15 - When are initial direct costs recognized in an...Ch. 15 - Prob. 15.26QCh. 15 - Prob. 15.27QCh. 15 - Prob. 15.28QCh. 15 - When a company sells an asset and simultaneously...Ch. 15 - Prob. 15.30QCh. 15 - Lease classification LO151 (Note: Brief Exercises...Ch. 15 - Lease classification LO151, LO152 Corinth Co....Ch. 15 - Lessee and lessor; calculate interest;...Ch. 15 - Finance lease; lessee; balance sheet effects ...Ch. 15 - Finance lease; lessee; income statement effects ...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Prob. 15.7BECh. 15 - Operating lease LO154 (Note: Brief Exercises 8...Ch. 15 - Operating lease LO154 At the beginning of its...Ch. 15 - Short-term lease LO155 King Cones leased ice...Ch. 15 - Uncertain lease term LO156 Java Hut leased a...Ch. 15 - Uncertain lease payments LO156 On January 1,...Ch. 15 - Purchase option; lessor; sales-type lease LO152,...Ch. 15 - Residual value; sales-type lease LO152, LO153,...Ch. 15 - Guarantee d residual value LO156 On January 1,...Ch. 15 - Lessors initial direct costs; sales-type lease ...Ch. 15 - Lease classification LO151 Each of the four...Ch. 15 - Prob. 15.9ECh. 15 - Lessor calculation of annual lease payments;...Ch. 15 - Sales-type lease; lessor; income statement effects...Ch. 15 - Calculation of annual lease payments; residual...Ch. 15 - Lease concepts; finance/sales-type leases;...Ch. 15 - Calculation of annual lease payments; purchase...Ch. 15 - Prob. 15.37ECh. 15 - Prob. 15.38ECh. 15 - Prob. 15.39ECh. 15 - Lessors initial direct costs; operating and...Ch. 15 - Research Case 151 FASB codification; locate and...Ch. 15 - Ethics Case 153 Leasehold improvements LO153...Ch. 15 - Communication Case 155 Wheres the gain? Appendix...Ch. 15 - Prob. 15.6DMPCh. 15 - Prob. 1CCTCCh. 15 - Prob. 2CCTC
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