Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Textbook Question
Chapter 18, Problem 18.19E
Operating Lease, Lessee, Amortization Schedules, Journal Entries. Cardillo Capital enters into a lease agreement with Vincent Motors to lease a delivery van with a fair value of $55,000 under a 36-month (3-year) lease The van has an estimated useful life of 8 years No initial direct costs are incurred by the lessor Cardillo has an option to purchase the van at the end of the lease for its fair value Monthly payments are $775 per month (payable on the first day of each month) with no cash down at inception, and there are no lease incentives Cardillo does not know the rate implicit in the lease and will use its annual incremental borrowing rate of 5% There is no transfer of title Cardillo does not guarantee a residual value at the end of the lease term and pays all insurance and maintenance independently of the lease contract to a third party Any sales tax charged is included in the lease payments Cardillo paid $900 in initial direct costs on the lease commencement date Cardillo has a fiscal year end of December 31, and prepares monthly financial statements The lease starts on January 1.
Required
- a. Classify the lease for Cardillo Capital.
- b. Determine the initial measurement of the lease liability and right-of-use asset.
- c. Prepare the partial amortization schedules needed to amortize the lease debt and the right of-use asset for the first 3 months of the lease agreement
- d. Prepare the
journal entries for the first 3 months of the lease.
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A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease term (also the
asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 7%. The lessor's fiscal year is the
calendar year. The lessor manufactured this asset at a cost of $144,000.
Required:
a. Determine the price at which the lessor is "selling" the asset (present value of the lease payments).
b. Create a partial amortization table through the second payment on January 1, Year 2.
c. What would be the increase in earnings that the lessor would report in its income statement for the first year ended December 31
(ignore taxes)?
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Complete this question by entering your answers in the tabs below.
Required A Required B Required C
Determine the price at which the lessor is "selling" the asset (present value…
On January 1, 2019, AA Company leased a plastic molding machine from BB Company. Additional information regarding the lease agreement follows:
Lease term
4 years
Annual rental payment, in advance
66,500
Residual value at the end of the lease term
15,000
Residual value guaranteed by AA
0
Implicit rate
8%
Expected useful life of the machine
6 years
AA intends to return the machine to BB at the end of the lease. The annual rental payment includes P1,500 to cover the costs of maintenance and insurance. AA Company, likewise paid P8,000 to its broker for securing the lease.
(Use two decimal places for present value factor in answer the following questions)
- What is the balance of the lease liability at January 1, 2019?
- What is the interest expense to be reported by AA in 2019?
- What is the balance of the lease liability at December 31, 2019?
- What is the depreciation expense reported in 2019?
- What is the carrying value of the leased asset at December 31, 2019?
Please provide solutions
amarisk Company leases equipment for 8 years with an annual rental of $1,600 per year or $12,800 in total. General Leasing (the lessor) agrees to provide Tamarisk with $300 for the first 2 years of the lease to defray needed repairs to the equipment Determine the lease payments that Tamarisk will pay for the first 3 years of the lease agreement Lease payments
Chapter 18 Solutions
Intermediate Accounting
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