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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Chapter 15, Problem 15.14BE
Residual value; sales-type lease
• LO15–2, LO15–3, LO15–6
On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The residual value after four years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. Calculate the amount of the annual lease payments.
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1.
Question 1
Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%.
Please refer to the instructions and the table in this question. Enter the correct journal entry for part [A].
Project 2.2 Part 2 Journal Entries
Date
Account Name (Debit)
Account Name (Credit)
Debit
Credit
1/1/20X1
ROU assets
[A]
Lease obligation
[B]
1/1/20X1
Lease obligation
[C]
Cash
[D]
12/31/20X1
Rental expense
[E]…
Problem 2
ABC Company signed a ten-year noncancelable lease agreement to lease a storage building to a lessee
under a sales type lease at the start of this year. At the conclusion of each year, the agreement demanded
equal rental payments. The building's fair market value is P7,530,000. The building's carrying amount, on
the other hand, is P6,420,000. The structure has a twelve-year projected economic life and no residual value.
The title to the building will be transferred to the lessee at the end of the lease. The yearly rental was
established by ABC to ensure a 12% return on investment. The lessee is aware of the lessor's implicit rate.
The entire yearly lease payment includes P300,000 in executory costs for property taxes.
What is the minimum annual lease payment?
b. What is the total annual lease payment?
Exercise 15-33 (Algo) Nonlease payments; lessor and lessee [LO15-2, 15-7]
On January 1, 2024, NRC Credit Corporation leased equipment to Brand Services under a finance/sales-type lease designed to earn NRC a 11% rate of return for providing long-term financing. The lease agreement specified the following:
Ten annual payments of $61,000 beginning January 1, 2024, the beginning of the lease and each December 31 thereafter through 2032.
The estimated useful life of the leased equipment is 10 years with no residual value. Its cost to NRC was $346,464.
The lease qualifies as a finance lease/sales-type lease.
A 10-year service agreement with Quality Maintenance Company was negotiated to provide maintenance of the equipment as required. Payments of $8,000 per year are specified, beginning January 1, 2024. NRC was to pay this cost as incurred, but lease payments reflect this expenditure.
A partial amortization schedule, appropriate for both the lessee and lessor, follows:
Note: Use…
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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- Question 1 Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%. Please refer to the instructions and the table in this question. Enter the correct journal entry for part [A]. Project 2.2 Part 2 Journal Entries Date Account Name (Debit) Account Name (Credit) Debit Credit 1/1/20X1 ROU assets [A] Lease obligation [B] 1/1/20X1 Lease obligation [C] Cash [D] 12/31/20X1 Rental expense [E]…arrow_forwardBrief Exercise 15-16 (Algo) Lessor's Initial direct costs; sales-type lease [LO15-3, 15-7] Bryant leased equipment that had a retall cash selling price of $700,000 and a useful life of four years with no residual value. The lessor spent $580,000 to manufacture the equipment and used an implicit rate of 9% when calculating annual lease payments of $198.228 beginning January 1, the beginning of the lease. Lease payments will be made January 1 each year of the lease. Incremental costs of consummating the lease transaction incurred by the lessor were $20,000. What is the effect of the lease on the lessor's earnings during the first year, not including any effect of depreciation no longer required on the asset under lease (Ignore taxes)? Note: Input decreases to Income as negative amounts. Impact on lessor's pretax earningsarrow_forwardPROBLEM 4: Lease arrangement with Guaranteed Residual Value and annual fixed lease payment is paid at the beginning of each year, with DIRECT COST and LEASE INCENTIVE Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental of P600,000 which is to be paid in advance at the beginning of each year. The lease contract provides that the lessee has guaranteed a P100,000 residual value of the leased asset and a lease incentive P80,000. Initial direct cost incurred and paid by the lessee amounted to P200,000. The implicit interest rate in the lease is 10%. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.arrow_forward
- Problem 15-3 (Algo) Lease amortization schedule [LO15-2] On January 1, 2024, Majestic Mantles leased a lathe from Equipment Leasing under a finance lease. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Majestic Portions of the Equipment Leasing's lease amortization schedule appear below: January 1 2024 2025 2026 2027 2028 2029 2030 2041 2042 2043 Payments $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 $ 26,500 Effective Interest $ 22,167 $ 21,734 $ 21,257 $ 20,733 $ 20,156 $ 19,522 1. Lease liability 2. Right-of-use asset 3. Lease term 4. Effective annual interest rate 5. Total of lease payments 6. Total effective interest expense Decrease in Balance $ 26,500 $ 4,333 $ 4,766 $ 5,243 $ 5,767 $ 6,344 $ 6,978 $ 6,590 $ 19,910 $ 4,599 $ 21,901 $ 2,409 $ 24,091 Outstanding Balance $ 248,178 $ 221,679 $ 217,337 $ 212,571 $ 207,328 $ 201,561 $ 195,217 $ 188,238…arrow_forward25. SLIGHTLY USED MEMORY leased a machine with an estimated useful life of 20 years from another company. The 10-year non-cancellable lease provides that the title to the machine transfers to SLIGHTLY USED MEMORY at the end of the lease term. The leased asset should be depreciated by SLIGHTLY USED MEMORY over * a. 10 years O b. 20 years c. 10 years or 20 years depending if O the lessee classifies it as either operating or finance lease d. 10 years or 20 years depending if O the lessor classifies it as either operating or finance leasearrow_forwardPROBLEM 6: Leased asset was PURCHASED by the lessee Lazy Company leased an equipment with useful life of 6 years on January 1, 2020 for period of 5 years with fixed annual rental ofP600,000 which is to be paid at the end of each year. The lease contract provides that the lessee has guaranteed a P100,000 residualvalue of the leased asset. The implicit interest rate in the lease is 10%. Assuming that at December 31, 2022, Lazy Companypurchased the equipment for P1,300,000. REQUIRED: Prepare table of amortization and journal entries for the entire lease term.arrow_forward
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