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 15.16BE
Lessor’s initial direct costs; sales-type lease
• LO15–3, LO15–7
Bryant leased equipment that had a retail cash selling price of $600,000 and a useful life of five years with no residual value. The lessor paid $530,000 to acquire the equipment and used an implicit rate of 8% when calculating annual lease payments of $139,142 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 $15,000. What is the effect of the lease on the lessor’s earnings during the first year (ignore taxes)?
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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.
Brief 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 earnings
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…
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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