(a) What kind of lease is this to Ehrlich Company? Describe in detail and show your calculations as to which test(s) this lease passes. (b) What is the present value of the lease payments? (c) What journal entries would Ehrlich record during 2021 and on 1/1/2022? (Include an amortization schedule through 1/1/23 and round to the nearest dollar.)
Q: Co.B provides the following unit sales forecast for the next three months: Jay August 61 54 00 00…
A: Production Budget :— This budget is prepared to estimate the budgeted units required to produce for…
Q: Sunshine Electronics Ltd records its inventory of Smile Luminous backpacks by using a perpetual…
A: The inventory is one of the types of current assets listed on the balance sheet of a company. These…
Q: Prepare budgeted income statements for each of the months of January, February, and March that show…
A: The income statement tells about the profitability of the business for the current period. The net…
Q: Magic Cleaning Services Unadjusted Trial Balance At December 31 Debit $430,900 158,000 111,000 2,400…
A: Adjusted Trial balance is the trial balance that is prepared after adjustment to ledger accounts…
Q: This narrative of prison films shows inmates are being people who deserve punishment. Nature of…
A: Solution:- correct option is ●Nature of confinement .
Q: Hyde Company's records for 2019 provide the following information: a. amortization of premium on…
A: Cash flow from operating activity means the net cash inflows and outflows from the daily operations…
Q: ctivity, share 2 specific examples of both cash receipts and cash payments based on 2 different…
A: Cash Flow Statement - The strength, profitability, and long-term prospects of a corporation may all…
Q: The records for Ehrlich Co. show this data for 2021: Accrued revenue recorded on the books was…
A: Pre-tax income indicates the income determined before charging the income tax expense. The income…
Q: Terry's Flooring have commenced using an integrated inventory management system where all floor…
A: The Integrated inventory management system is a system that serves multiple needs with the inclusion…
Q: The Corporation provided the following account balances on December 31, 2022: P 600,000 3,500,000…
A: Financial statement means the statement which include the income statement and the balance sheet.…
Q: Question 2 Pisang Berhad produces 500,000 switches per year with the following costs: (For the…
A: Make or Buy Decision is the process of using cost- benefit analysis in order to make a strategic…
Q: A company started the accounting period with accounts payable of $45,000 and ended the accounting…
A: Beginning accounts payable and credit purchase during the period represents the total amount payable…
Q: Estimated sales in units Selling price Direct manufacturing labour-hours per unit Wage per direct…
A: Production budget: Based on anticipated future sales figures, managers utilize the production budget…
Q: Given the following information, compute stockholders' equity as of December. $52,000 Assets, Dec.…
A: Stockholders' equity: Stockholders' equity means the net assets available to shareholders after…
Q: Preparing Non-cash Investing and Financing Activities Problem 7 (E-F:14-25): Sammons & Sons Inc.…
A: Non-cash transaction are transaction that does not involve inflow or outflow of cash. No dealing of…
Q: Sells merchandise to customers. Cost of inventory is 70% of the selling price. • Lowes uses a gross…
A: Allowance for doubtful accounts means where account receivables are not going to recover in full and…
Q: Ervin Company uses the allowance method to account for uncollectible accounts receivable. Bad debt…
A: Bad debt expense :— It is the expenses that are recognised when accounts receivable is no longer…
Q: When Kevin and Marshall formed the equal KM LLC, the fair market values of their interests were…
A: The basis of the property contributed by partners to the partnership firm is determined for the…
Q: Dividends per share Windborn Company has 10,000 shares of cumulative preferred 1% stock, $50 par and…
A: Preference shares, also known as preferred stock, is an exclusive share option which enables…
Q: Andromeda Manufacturing Company has the following data in the ledger for the year ended December 31,…
A: The question has asked to compute the operating income. Operating income: The operating income…
Q: 3. You are to enter up the necessary accounts for the month of May from the following details and…
A: A trial balance's main function is to confirm that the entries in a firm's accounting system are…
Q: On January 1, 2020, Urban Inc. issued 10,000 shares of $1 par common stock for $10 per share. On…
A: Reacquired stock is shares that the issuing entity has purchased back from investors. These shares…
Q: 2. On February 1, 2023, Marsh Contractors agreed to construct a building at a contract price of…
A: Gross profit under percentage of completion method = [(costs incurred to date / estimated total…
Q: Statement of Cash Flows The following is a list of the items for Lombardo Company's 2019 statement…
A: When it comes to managing an organization's finances and keeping track of its cash flow, a cash flow…
Q: onsider the following data: 2 9 6 alculate the Sample Variance. Round to one decimal pl 3.09 O 12.1…
A: Solution:- Calculation of the sample variance as follows:-
Q: 1. Express the balance sheets in common-size percents. 2. Assuming annual sales have not changed in…
A: Common size statement is a form of vertical analysis. In this method common size income statement…
Q: $ 50,000 Common stock, $12 par, 50,000 shares authorized and outstanding 600,000 Additional…
A: Answer : Mendes' total contribution capital = Preferred stock ,Cumulative non participating…
Q: Oriole Company sells product 1976NLC for $31.00 per unit. The cost of one unit of 1976NLC is $30,…
A: Inventory is reported at cost or market price which ever is lower. Market price is net realisable…
Q: Direct materials $ 15 $ 330,000 Direct labor 8 176,000 Variable manufacturing overhead 3 66,000…
A: A make or buy decision refers to the process of decision making where the decision is made either to…
Q: 3. Hilda Homeowner enters into a signed written contract with Carpenter Cory to build a deck for…
A: Hilda enters into a signed written contract with Cory to build a deck for $2000 in 3 weeks. After 5…
Q: Financial Statements from the End-of-Period Spreadsheet Bamboo Consulting is a consulting firm…
A: Introduction: Income statement is prepared to know the amount of income or loss earned during the…
Q: 16. A three-year project requires an initial investment of £100,000 and will produce positive net…
A: Sensitivity analysis is used to determine the most sensitive element or factor which influences the…
Q: The following accounts balances and other financial information are drawn from the records of the…
A: "Since you have posted a question with multiple subparts, we will solve the first three subparts for…
Q: 40) Scottie Adams Bird Supplies issued 15% bonds, dated January 1, with a face amount of $250,000 on…
A: Introduction: Since contractual rate of interest on bonds (15%) is more than the market yield (14%),…
Q: Jasper Company has 62% of its sales on credit and 38% for cash. All credit sales are collected in…
A: The cash collection schedule is prepared to estimate the cash collection from customers during the…
Q: Blitz Computer Center, a retailer of computer hardware and software, started operation in 2021. The…
A: Explanation - There are two statements of the organization which show different accounting…
Q: The following data are available: Budgeted overhead Overhead rate per MHr. Actual overhead Actual…
A: Overhead rate: Overhead rate is calculated before the period begins. This overhead is calculated…
Q: Machine hours Indirect materials (variable) Rent (fixed) Maintenance (mixed) Overhead Costs 60,000…
A: Overhead cost is the amount of cost incurred on the making of the goods. It is the cost which could…
Q: Intra-Spect Mining Co. acquired mineral rights for $52,000,000. The mineral deposit is estimated at…
A: "Since you have asked multiple questions, we will solve first question for you. If you want any…
Q: August 1 Finished Goods Inventory Work in Process Inventory Raw Materials Inventory Total debits to…
A: The factory overhead are said to be the indirect course that are incurred in order to perform the…
Q: Statement of Financial Position ($ in thousands) Statement of Comprehensive Income ($ in…
A: Ratio analysis is the study of several financial data points seen in the financial statements of an…
Q: Explain the meaning of Non -current Assets in business setting
A: Non-current assets, also referred to as long-term assets, are a company’s physical, tangible, or…
Q: Activity-Based Costing: Selling and Administrative Expenses Jungle Junior Company manufactures and…
A: ACTIVITY BASED COSTING Activity Based Costing is a Powerful tool for measuring performance.…
Q: Nozama.com Inc. sells consumer electronics over the Internet. For the next period, the budgeted cost…
A: Activity-based costing (ABC) method: It is a method of assigning of indirect costs and overhead to a…
Q: Robert Jones has just rendered service for a taxpayer as an expert witness in a case heard by the U.…
A: Relevant Facts Robert Jones recently assisted a taxpayer in a lawsuit before the US Tax Court as an…
Q: These documents do not need to be disclosed Question 9 options: A) documents that are not notarized…
A: Disclosure of documents Disclosing documents means producing the documents before any authority or…
Q: 6. Division R supplies Division S and is credited with £20 per item in the intercompany account.…
A: A transfer pricing system is a method of setting prices for goods or services transferred between…
Q: Sales revenue Operating expenses: Cost of goods sold Depreciation expense Insurance expense General…
A: The various sections of cash flow statement are operating, investing and financing activities. The…
Q: Suppose Caterpillar's defined-benefit pension plan offers a retirement benefit tied to years of…
A: A defined benefit plan seems to be a form of pension scheme that promises a lifelong payout when the…
Q: Hal's Ice Cream Stands $ Thousands Assets Cash and cash equivalents Accounts receivable Inventories…
A: The question is related to Information regarding yea 2022 based the financial statements provided…
16)
Ehrlich Company on January 1, 2021, enters into a 20-year noncancelable lease for equipment having an estimated useful life of 21 years and a fair value to the lessor, at the inception of the lease of $4,000,000. Ehrlich’s incremental borrowing rate is 4%. Ehrlich uses the straight-line method to
- Rental payments of $266,000 are payable at the beginning of each year.
- A guaranteed residual value by Ehrlich Company for $80,000 at the expiration of the lease. Ehrlich expects to have to pay this entire amount.
Instructions
(a) What kind of lease is this to Ehrlich Company? Describe in detail and show your calculations as to which test(s) this lease passes.
(b) What is the present value of the lease payments?
(c) What
Step by step
Solved in 3 steps
- Determining Type of Lease and Subsequent Accounting On January 1, 2019, Caswell Company signs a 10-year cancelable (at the option of either party) agreement to lease a storage building from Wake Company. The following information pertains to this lease agreement: 1. The agreement requires rental payments of 100,000 at the beginning of each year. 2. The cost and fair value of the building on January 1, 2019, is 2 million. The storage building has not been specialized for Caswell. 3. The building has an estimated economic life of 50 years, with no residual value. Caswell depreciates similar buildings according to the straight-line method. 4. The lease does not contain a renewable option clause. At the termination of the lease, the building reverts to the lessor. 5. Caswells incremental borrowing rate is 14% per year. Wake set the annual rental to ensure a 16% rate of return (the loss in service value anticipated for the term of the lease). Caswell knows the implicit interest rate. 6. Executory costs of 7,000 annually, related to taxes on the property, are paid by Caswell directly to the taxing authority on Dec. 31 of each year. Required: 1. Determine what type of lease this is for the lessee. 2. Prepare appropriate journal entries on the lessees books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020.Comprehensive Landlord Company and Tenant Company enter into a noncancelable, direct financing lease on January 1, 2019, for nonspecialized equipment that cost the Landlord 280,000 (useful life is 6 years with no residual value). The fair value of the equipment is 300,000. The interest rate implicit in the lease is 14%. The 6-year lease requires 6 equal annual amounts payable each January 1, beginning with January 1, 2019. Tenant pays all executory costs directly to a third party on December 1 of each year. The equipment reverts to the lessor at the termination of the lease. Assume that there are no initial direct costs. Landlord expects to collect all rental payments. Required: 1. Next Level (a) Show how landlord should compute the annual rental amounts, (b) Discuss how the Tenant Company should compute the present value of the lease payments. What additional information would be required to make this computation? 2. Next Level Prepare a table summarizing the lease and interest receipts that would be suitable for Landlord. Under what conditions would this table be suitable for Tenant? 3. Assuming that the table prepared in Requirement 2 is suitable for both the lessee and the lessor, prepare the journal entries for both firms for the years 2019 and 2020. Use the straight-line depreciation method for the leased equipment. The executory costs paid by the lessee are in 2019: insurance, 700 and property taxes, 800; in 2020: insurance, 600 and property taxes, 750. 4. Next Level Show the items and amounts that would be reported on the comparative 2019 and 2020 income statements and ending balance sheets for both the lessor and the lessee, using the change in present value approach.Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement dated January 1, 2019, that provides for it to lease non-specialized heavy equipment from Scott Rental Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 4 years. The lease is noncancelable and requires annual rental payments of 20,000 to be paid in advance at the beginning of each year. 2. The cost, and also fair value, of the heavy equipment to Scott at the inception of the lease is 68,036.62. The equipment has an estimated life of 4 years and has a zero estimated residual value at the end of this time. 3. Adden agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. Scotts interest rate implicit in the lease is 12%. Adden is aware of this rate, which is equal to its borrowing rate. 6. Adden uses the straight-line method to record depreciation on similar equipment. 7. Executory costs paid at the end of the year by Adden are: Required: 1. Next Level Determine what type of lease this is for Adden. 2. Prepare a table summarizing the lease payments and interest expense for Adden. 3. Prepare journal entries for Adden for the years 2019 and 2020.
- On January 1, 2020, Dulcinea Company enters into a ten-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Mojito Corp., at the inception of the lease of $6,000,000. Dulcinea's incremental borrowing rate is 4%. Dulcinea uses the straight-line method to depreciate its assets. The lease contains the following provisions: 1. Rental payments of $687,268, payable at the beginning of each year. 2. There is a guaranteed residual value of $300,000. The expected residual value is $250,000. Required: What kind of lease is this to the two companies and why? а. b. Prepare the journal entries for both companies during the first year of the lease.Bravo Co. on January 1, 2021, enters into a nine-year non-cancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Stacey Corp., at the inception of the lease of $4,000,000. Bravo Co's incremental borrowing rate is 8%. Bravo Co. uses the straight-line method to depreciate its assets. The lease contains the following provisions: Rental payments of $266,000 are payable at the beginning of each six-month period. An option allowing the lessor to extend the lease one year beyond the lease term. A guarantee by Bravo Co that Stacey Corp. will realize $200,000 from selling the asset at the expiration of the lease. However, the actual residual value is expected to be $120,000. Instructions (a) What kind of lease is this to Bravo Co? (b) What should be considered the lease term? (c) What is the present value of the lease payments (1) for classification of the lease and (2) for measurement of the lease liability? (PV factor for…Eubank Company, a lessee, enters into a lease agreement on January 1, 2021, for equipment. The following data are relevant to the lease agreement: - The term of the noncancelable lease is 4 years. Payments of $978,446 are due on January 1 of each year. The first payment is January 2021. - The fair value of the equipment on January 1, 2021 is $3,500,000. The equipment has an economic life of 6 years with nosalvage value. - Eubank uses the straight-line method of depreciation. - Eubank’s implicit rate is 8%. - This will be treated as a finance lease (Lessee Perspective). Instructions: Prepare the journal entries on Eubank’s books (lessee) that relate to the lease agreement for the following dates, you do not need to create an amortization schedule. a. January 1, 2021. b. December 31, 2021.
- On January 1, 2020, Dulcinea Company enters a ten-year noncancelable lease for equipment having an estimated useful life of 10 years and a fair value to the lessor, Mojito Corp., at the inception of the lease of $6,000,000. Dulcinea's incremental borrowing rate is 4%. Dulcinea uses the straight-line method to depreciate its assets. The lease contains the following provisions: (Assume the cost to the lessor was $4,000,000.) 1. Rental payments of $687,268, payable at the beginning of each year. 2. There is a guaranteed residual value of $300,000. The expected residual value is $250,000. Required: a. What kind of lease is this to the two companies and why? b. Prepare the journal entries for both companies during the first year of the lease.On January 1, 2022, Tiktok Company leased a heavy equipment to be used in its construction business. The following information relates to the lease: Lease term -10 years Useful life of the equipment - 12 years Annual rental payable in advance every January 1 - P240,000 Implicit interest rate - 14% Incremental borrowing rate - 12% Tiktok has the option to purchase the leased asset by paying P400,000, which approximates the fair value of the equipment on the option exercise date. (Round off the PV factor to four decimal places)What is the cost of the right-of-use asset?Teal Mountain Corporation recorded a right-of-use asset for $284,000 as a result of a finance lease on December 31, 2019. Teal Mountain's incremental borrowing rate is 13%, and the implicit rate of the lessor was not known at the commencement of the lease. Teal Mountain made the first lease payment of $52,373 on on December 31, 2019. The lease requires 8 annual payments. The equipment has a useful life of 8 years with no residual value. Prepare Teal Mountain's December 31, 2020, entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 (To record interest expense) December 31, 2020 (To record amortization of the right-of-use asset)
- Vaughn Company, as lessee, enters into a lease agreement on January 1, 2022, for equipment. The following data are relevant to the lease agreement: 1. The term of the noncancelable lease is 4 years, with no renewal option. Payments of $422,689 are due on January 1 of each year. 2. The fair value of the equipment on January 1, 2022 is $1,512,000. The equipment has an economic life of 6 years with no salvage value. 3. Vaughn depreciates similar machinery it owns on the straight-line basis. 4. The lessee pays all executory costs. 5. Vaughn’s incremental borrowing rate is 10%, but Vaughn knows that 8% is the lessor’s implicit interest rate. 6. Vaughn has a December 31 year-end. Required: a. Indicate the type of lease that Vaughn Company has entered into and why. b. Prepare an amortization table for Vaughn in Excel. c. Prepare the journal entries on Vaughn’s books for the first two years of the lease.On January 1, 2020, Dufferin Corp. enters into a 10-year non-cancellable lease with Pine Ltd. to lease equipment with an estimated useful life of 11 years and a fair value of $6,000,000. The borrowing rate on the lease is 8%. Dufferin uses the straight-line method to depreciate assets. The lease contains the following provisions: Semi-annual lease payments of $438,000 (the payments include $38,000 for property taxes), payable on January 1 and July 1 of each year. A guarantee by Dufferin Corp. that Pine Ltd. will realize $200,000 from selling the asset at the expiration of the lease. Both companies adhere to IFRS. Instructions Calculate the present value of the minimum lease payments over the life of the lease. Round to the nearest dollar. What kind of lease is this to Dufferin Corp.? Why? Provide a lease amortization schedule for the full lease. You should prepare your schedule using Excel and copy it into your Word document. The lease amortization schedule provides you an…Tamarisk Corporation recorded a right-of-use asset for $259,700 as a result of a finance lease on December 31, 2019. Tamarisk’s incremental borrowing rate is 11%, and the implicit rate of the lessor was not known at the commencement of the lease. Tamariskmade the first lease payment of $49,651 on on December 31, 2019. The lease requires 7 annual payments. The equipment has a useful life of 7 years with no residual value.Prepare Tamarisk's December 31, 2020, entries. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round answers to 0 decimal places e.g. 5,275.) Date Account Titles and Explanation Debit Credit December 31, 2020 enter an account title to record interest expense enter a debit amount enter a credit amount enter an account title to record interest expense enter a debit amount enter a credit amount enter an account title to record interest expense enter a debit amount enter a credit…