9Company A leases a piece of machinery to Company B on January 1, Year 1. Information pertaining to the lease is as follows:• The lease is non-cancellable with a term of three years.• The machinery has a cost and fair value at the start of the lease of $40,000; an estimated economic life of five years; and a residual value at the end of the lease of $7,500 (unguaranteed).• The lease contains no renewal options, and the machinery reverts to Company A at the end of the lease.• The following amounts have been calculated in reference to this transaction:o Present value of the residual is $6,478o Lease payment based upon present value of annuity of $33,522 is $11,723o Lease payment based upon present value of annuity of $32,500 is $11,366How much should Company B record as lease expense on December 31, Year 1?O $10,833O $11,366O $11,723O $13,333NEXT >BOOKMARK▷

A lease is a contractual arrangement between two parties, known as the lessor and lessee, where the…

Company A leases a piece of machinery to Company B on January 1, Year 1. Information pertaining to the lease is as follows: • The lease is non-cancellable with a term of three years. • The machinery has a cost and fair value at the start of the lease of $40,000; an estimated economic life of five years; and a residual value at the end of the lease of $7,500 (unguaranteed). • The lease contains no renewal options, and the machinery reverts t Company A at the end of the lease. • The following amounts have been calculated in reference to this transaction: • Present value of the residual is $6,478 • Lease payment based upon present value of annuity of $33,522 is $11,723 • Lease payment based upon present value of annuity of $32,500 is $11,366 How much should Company B record as lease expense on December 31, Year 1? O $10,833 O $11,366 O $11,723 O $13,333 ▷

Company A leases a piece of machinery to Company B on January 1, Year 1. Information pertaining to the lease is as follows: • The lease is non-cancellable with a term of three years. • The machinery has a cost and fair value at the start of the lease of $40,000; an estimated economic life of five years; and a residual value at the end of the lease of $7,500 (unguaranteed). • The lease contains no renewal options, and the machinery reverts t Company A at the end of the lease. • The following amounts have been calculated in reference to this transaction: • Present value of the residual is $6,478 • Lease payment based upon present value of annuity of $33,522 is $11,723 • Lease payment based upon present value of annuity of $32,500 is $11,366 How much should Company B record as lease expense on December 31, Year 1? O $10,833 O $11,366 O $11,723 O $13,333 ▷

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...

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Determining Type of Lease and Subsequent Accounting On January 1, 2019, Ballieu Company leases specialty equipment with an economic life of 8 years to Anderson Company. The lease contains the following terms and provisions: The lease is noncancelable and has a term of 8 years. The annual rentals arc 35,000, payable at the beginning of each year. The interest rate implicit in the lease is 14%. Anderson agrees to pay all executory costs directly to a third party and is given an option to buy the equipment for 1 at the end of the lease term, December 31, 2026. The cost of the equipment to the lessee is 150,000, and the fair value is approximately 185,100. Ballieu incurs no material initial direct costs. It is probable that Ballieu will collect the lease payments. Ballieu estimates that the fair value is expected to be significantly greater than 1 at the end of the lease term. Ballieu calculates that the present value on January 1, 2019, of 8 annual payments in advance of 35,000 discounted at 14% is 185,090.68 (the 1 purchase option is ignored as immaterial). Required: 1. Next Level Identify the classification of the lease transaction from Ballices point of view. Give the reasons for your classification. 2. Prepare all the journal entries tor Ballieu for the years 2019 and 2020. 3. Discuss the disclosure requirements for the lease transaction in Ballices notes to the financial statements.
Use the information in RE20-3. Prepare the journal entries that Garvey Company would make in the first year of the lease assuming the lease is classified as a finance lease. However, assume that Garvey is now required to make the 65,949.37 payments on January 1 each year and that the fair value at the lease inception is now 275,000 (65,949:37 4:169865).
Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a 5-year, noncancelable, sales-type lease on January 1, 2019, for equipment that cost Lessor 375,000 (useful life is 5 years). The fair value of the equipment is 400,000. Lessor expects a 12% return on the cost of the asset over the 5-year period of the lease. The equipment will have an estimated unguaranteed residual value of 20,000 at the end of the fifth year of the lease. The lease provisions require 5 equal annual amounts, payable each January 1, beginning with January 1, 2019. Lessee pays all executory costs directly to a third party. The equipment reverts to the lessor at the termination of the lease. Assume there are no initial direct costs, and the lessor expects to be able to collect all lease payments. Required: 1. Show how Lessor should compute the annual rental amounts. 2. Prepare a table summarizing the lease and interest receipts that would be suitable for Lessor. 3. Prepare a table showing the accretion of the unguaranteed residual asset. 4. Prepare the journal entries for Lessor for the years 2019, 2020, and 2021.
Leased Assets Koffman and Sons signed a four-year lease for a forklift on January 1, 2016. Annual lease payments of $1,510, based on an interest rate of 8%, are to be made every December 31, beginning with December 31, 2016. Required Assume that the lease is treated as an operating lease. Will the value of the forklift appear on Koffmans balance sheet? What account will indicate that lease payments have been made? Assume that the lease is treated as a capital lease. Prepare any journal entries needed when the lease is signed. Explain why the value of the leased asset is not recorded at $6,040 (1,5104). Prepare the journal entry to record the first lease payment on December 31, 2016. Calculate the amount of depreciation expense for the year 2016. At what amount would the lease obligation be presented on the balance sheet as of December 31, 2016?
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.
Company A agrees to lease a robotic welding unit from Company B on January 1, Year 1. The following conditions apply to the lease: • The term of the lease is five years, non-cancellable, and requires payments of $101,350 at the beginning of each year. • The robotic welding unit will have a fair value of $50,000 at the end of the lease; an estimated useful life of five years; and $45,000 guaranteed residual value. • There are no renewal options, so the unit will revert to Company B at the termination of the lease. • Company A can borrow at a 5% interest rate. • Company A uses straight-line depreciation on its assets. Company B set its annual rate of return at 4%, and Company A is aware of this rate. • Present values are as follows: • Present value of lease payments at 4%: $469,240.37 • Present value of lease payments at 5%: $460,737.10 • Present value of residual value at 4%: $38,457.00 • Present value of residual value at 5%: $37,021.50 How much should Company B record as a lease…
6 Company A (lessee) has reached a lease agreement with Company B (assor) to kase a new carpet weaving machine beginning January 1, Year 1. The lease agreement contains the following information • The lease is for five years, requiring annual payments of $10,355.67 at the beginning of the year. • The weaving machine has a fair value at the beginning of the lease of $50,000; an estimated economic life of five years; and a guaranteed residual value of $2,500 (Company A expects that the value will be greater). • Present value of the weaving machine is $47,945.18. • There are no renewal options. At the end of the lease, the weaving machine will be returned to Company B. • Company A depreciates similar equipment that it purchases on a straight-line basis. • Company B sels the annual lease rate al 5% and Company A is aware of the rate. • The lease is a finance lease. COMPANY A LEASE AMORTIZATION SCHEDULE ANNUITY-DUE BASIS Annual Lease Payment Date January 1, Year 1 January 1, Year 1 January…
The following information relates to Wilson, Inc.'s equipment lease with an inception date of January 1: • Fair value of equipment at lease inception, $91,200 • Lease term, 4 years • Economic life of property, 5 years • Implicit interest rate, 6% • Annual lease payment due on December 31, $25,600 • Present value of the lease payments, $88,707 The equipment reverts back to the lessor at the end of the lease term. How much is interest expense on the lease for the first year? Select one: a. $2,736 b. $1,331 c. $5,322 d. $5,472
The following information relates to Wilson, Inc.'s equipment lease with an inception date of January 1: • Fair value of equipment at lease inception, $91,200 • Lease term, 4 years • Economic life of property, 5 years • Implicit interest rate, 6% • Annual lease payment due on December 31, $25,600 • Present value of the lease payments, $88,707 The equipment reverts back to the lessor at the end of the lease term. By how much does the lease liability decrease during the first year? Select one: a. $20,128 b. $5,322 c. $25,600 d. $20,278
On January 1, 20x1, Entity Y leases out a piece of equipment to Entity X. Information on the lease is as follows: Lease term 3 years Annual rent payable at the end of each year 100,000 Interest rate implicit in the lease 10% The lease provides for the transfer of ownership of the equipment to the lessee at the end of the lease term. What total amount of finance income will Entity Y recognize over the lease term?
2... The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate Prepare all of the journal entries for the lessee for and to record the lease agreement, the lease payments, and all expenses related to this lease. Assume the lessee’s annual accounting period ends on December 31. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the…
2. The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Splish Company, a lessee. Commencement date January 1, Annual lease payment due at the beginning of each year, beginning with January 1, $119,127 Residual value of equipment at end of lease term, guaranteed by the lessee $54,000 Expected residual value of equipment at end of lease term $49,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, $659,000 Lessor’s implicit rate 6 % Lessee’s incremental borrowing rate 6 % The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.Click here to view factor tables. (a) Prepare an amortization schedule that would be suitable for the lessee for the lease term. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the…