Intermediate Accounting
3rd Edition
ISBN: 9780136912644
Author: Elizabeth A. Gordon; Jana S. Raedy; Alexander J. Sannella
Publisher: Pearson Education (US)
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Chapter 18, Problem 18.3E
Operating Lease, Nonlease Components, Lessee. BabyClothmg (BC) Enterprises leases digital imaging equipment from Sally Systems Leasing. The lease term is for 3 years and the economic life of the equipment is 5 years. The lease contract does not contain a purchase option and title will not be transferred at the end of the lease term. The fair value of the equipment is $5,500 and there is no guaranteed residual value. Sally Systems does not offer any incentives to the lessee to enter the lease BC paid $550 in initial direct costs on the lease commencement date BC's incremental borrowing rate is 4% and is used to measure the present value because the lessor's implicit rate is not readily determinable. The annual lease payments (due on January 1 of each year) are $990, which includes technological consulting over the lease term. The digital imaging equipment is typically leased for $900 per year and the consulting is provided at a price of $450 per year. BC has not made the election to account for each separate lease component along with nonlease components as a single lease component. As a result, the components must be separated.
Required
- a. Classify the lease for BC Enterprises
- b. Prepare the
journal entries for the lessee and supporting amortization tables to account for this agreement over the lease term.
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Grygiel Company leases a nonspecialized machine with a fair value of $40,000 to Baker Company. The lease has a life of 6 years and requires a $6,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round intermediate and final answers to the nearest dollar.
(Click here to access the PV and FV tables to use with this problem.)
Required:
1. If the interest rate implicit in the lease is 10%, compute the machine’s expected residual value.$fill in the blank 1
Grygiel Company leases a nonspecialized machine with a fair 20 value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and life of the lease is less than a major part of the expected economic life of the machine. It is probable at Grygiel will collect lease payments plus any amount necessary to satisfy a residual value guarantee. Round your answers to the nearest dollar. 1. Next Level If the interest rate implicit lease is 10%, compute the machine's expected residual value. 2. Next Level If the residual alue is guaranteed by Baker, how would each company classify the lease? 3. Next Level If the residual value is not guaranteed by Baker but is instead guaranteed by a third party,how would each company classify the lease?
Burns, Inc. (lessor) agreed to lease a delivery van to Wilmore Corp. (lessee). The lease was
classified as a finance/sales-type lease, but the van will be turned back over to Burns at the
end of six years.
Which of the following is true regarding the proper treatment of the delivery van's
estimated residual value?
Multiple Choice
In a lease that includes selling profit, the lessor will add the
present value of the estimated residual value to sales revenue in
the initial entry.
U In establishing the initial lease payable, Wilmore will include the
present value of the full estimated residual value, but only if it is
guaranteed.
Estimated residual values are ignored by both parties when
initially recording a lease.
In calculating the required lease payments, Burns will consider the
estimated residual value regardless of whether it is guaranteed or
unguaranteed by Wilmore.
Chapter 18 Solutions
Intermediate Accounting
Ch. 18 - Does the lessee become the owner of the equipment...Ch. 18 - Prob. 18.2QCh. 18 - Prob. 18.3QCh. 18 - What are typical terms and provisions in a lease...Ch. 18 - How does a lease offer business and financial...Ch. 18 - Prob. 18.6QCh. 18 - How is the right-of-use asset measured?Ch. 18 - What components are included in a lease contract?Ch. 18 - How does a lessee separate lease and nonlease...Ch. 18 - How does a lessor separate lease and nonlease...
Ch. 18 - Does a lessee have an option not to separate lease...Ch. 18 - What are the criteria for a lessee to report a...Ch. 18 - Prob. 18.13QCh. 18 - Can the lessor account for a lease either as an...Ch. 18 - What is the difference in the lessees lease...Ch. 18 - How does a guaranteed residual value affect the...Ch. 18 - Prob. 18.17QCh. 18 - What discount rate does the lessee use to...Ch. 18 - Does the choice of discount rate (i.e., the lessee...Ch. 18 - Prob. 18.20QCh. 18 - Prob. 18.21QCh. 18 - Prob. 18.22QCh. 18 - How does a lessee measure the lease liability?Ch. 18 - What is the lessees short-term lease policy...Ch. 18 - Prob. 18.25QCh. 18 - What are the lessee s accounting and reporting...Ch. 18 - Prob. 18.27QCh. 18 - Prob. 18.28QCh. 18 - Prob. 18.29QCh. 18 - How does the lessor measure the net investment in...Ch. 18 - Prob. 18.31QCh. 18 - Prob. 18.32QCh. 18 - Prob. 18.33QCh. 18 - Baxter Brothers, Inc. enters into a four-year...Ch. 18 - Zhou Systems signed a 5-year lease at the...Ch. 18 - Insight Corporation leases equipment for 5 years...Ch. 18 - Lowe Leasing Company recently leased machinery to...Ch. 18 - Prob. 18.5MCCh. 18 - Prob. 18.6MCCh. 18 - Prob. 18.7MCCh. 18 - Bischoff Enterprises leases office space from...Ch. 18 - Identifying Lease and Nonlease Components. Deane...Ch. 18 - Prob. 18.2BECh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as a Finance or Operating Lease,...Ch. 18 - Prob. 18.7BECh. 18 - Prob. 18.8BECh. 18 - Prob. 18.9BECh. 18 - Classification of Lease, Lessor, IFRS. Repeat the...Ch. 18 - Prob. 18.11BECh. 18 - Finance Lease, Lessee, Lessor, Guaranteed Residual...Ch. 18 - Finance Lease, Lessee, Lessor, Unguaranteed...Ch. 18 - Composition of Lease Payments, Variable Payments....Ch. 18 - Composition of Lease Payments. Variable Payments....Ch. 18 - Determining the Implicit Rate In the Lease. Assume...Ch. 18 - Prob. 18.17BECh. 18 - Prob. 18.18BECh. 18 - Prob. 18.1ECh. 18 - Allocation of Total Payments to Lease and Nonlease...Ch. 18 - Operating Lease, Nonlease Components, Lessee....Ch. 18 - Operating Lease, Rate or Index, Effect of Variable...Ch. 18 - Prob. 18.5ECh. 18 - Prob. 18.6ECh. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 18.9ECh. 18 - Prob. 18.10ECh. 18 - Prob. 18.11ECh. 18 - Prob. 18.12ECh. 18 - Prob. 18.13ECh. 18 - Finance Lease, Purchase Option, Lessee,...Ch. 18 - Prob. 18.15ECh. 18 - Prob. 18.16ECh. 18 - Prob. 18.17ECh. 18 - Operating Lease, Lessor. True Image Copier Company...Ch. 18 - Operating Lease, Lessee, Amortization Schedules,...Ch. 18 - Prob. 18.20ECh. 18 - Prob. 18.21ECh. 18 - Classification as Finance or Operating Lease....Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance, Sales-Type, or...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Classification as Finance or Operating Lease,...Ch. 18 - Prob. 18.8PCh. 18 - Prob. 18.9PCh. 18 - Prob. 18.10PCh. 18 - Prob. 18.11PCh. 18 - Direct Financing Lease, Deferred Selling Profit,...Ch. 18 - Cases Judgment Cases Judgment Case 1: Comparison...Ch. 18 - Judgment Case 2: Lease Classification On January...Ch. 18 - Prob. 1FSCCh. 18 - Prob. 2FSCCh. 18 - Surfing the Standards Case 1: Lease Contracts...Ch. 18 - Prob. 2SSCCh. 18 - Prob. 3SSCCh. 18 - Basis for Conclusions Case 1: Operating Lease...Ch. 18 - Prob. 2BCCCh. 18 - Basis for Conclusions Case 3: Lease Classification...
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