ecifying that ownership of the ferry will transfer to the lessee at the end of the nual lease payments do not include executory costs. Other terms of the agre lows: P9,000,000 P2,000,000 iginal cost of the ferry ase payment payable in advance timated residual value P1,000,000 plicit interest rate te of first lease payment ase term 12% January 1, 2020 10 years hat is the profit on sale for 2020?
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- 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.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.Lessee Accounting Issues Sax Company signs a lease agreement dated January 1, 2019, that provides for it to lease computers from Appleton Company beginning January 1, 2019. The lease terms, provisions, and related events are as follows: 1. The lease term is 5 years. The lease is noncancelable and requires equal rental payments to be made at the end of each year. The computers are not specialized for Sax. 2. The computers have an estimated life of 5 years, a fair value of 300,000, and a zero estimated residual value. 3. Sax agrees to pay all executory costs directly to a third party. 4. The lease contains no renewal or bargain purchase options. 5. The annual payment is set by Appleton at 83,222.92 to earn a rate of return of 12% on its net investment. Sax is aware of this rate. Saxs incremental borrowing rate is 10%. 6. Sax uses the straight-line method to record depreciation on similar equipment. Required: 1. Next Level Examine and evaluate each capitalization criteria and determine what type of lease this is for Sax. 2. Calculate the amount of the asset and liability of Sax at the inception of the lease (round to the nearest dollar). 3. Prepare a table summarizing the lease payments and interest expense. 4. Prepare journal entries for Sax for the years 2019 and 2020.
- Asian Transit Marine Corporation (Lessee) leases a forklift from NDP Leasing Corp. (Lessor). The lease, signed on January 1, 2019, specifies that NDP grants right-of-use of the lift to Asian Transit. The lease terms are as follows: 1. Lease is non-cancelable, term of four years, equal rental payments of P9,538.39 at the beginning of each year (annuity-due) 2. Forklift has a fair value of P40,000, economic life of six years, and residual value of P8,000 (unguaranteed). 3. Cost of forklift on NDP's books is P30,000. 4. No renewal options. Forklift reverts to NDP. Implicit rate of lessor is 8 percent and is known by Asian Transit. Required: Journal Entries for both the Lessor, and the Lessee from lease commencement until last lease payment. Show solutions of arrived amounts in good form.Ivie Company uses leases as a method of selling its products. In 2020, Ivie Company completed construction of a passenger ferry. On January 1, 2020, the ferry was leased on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Other terms of the agreement are as follows: Original cost of the ferry P9,000,000 Lease payment payable in advance P2,000,000 Estimated residual value P1,000,000 Implicit interest rate 12% Date of first lease payment January 1, 2020 Lease term 10 years 4. What is the profit on sale for 2020? 5. What is the interest income for 2020?On January 1, 2020, Perriman Company transferred equipment for cash and leased it back. As seller-lessee, Perriman retained the right to substantially all of the remaining use of the equipment. The term of the lease is 8 years. Instructions a. What is the major issue related to sale-leaseback accounting? b. 1. How should Perriman account for the sale portion of the sale-leaseback transaction at January 1, 2020? 2. How should Perriman account for the leaseback portion of the sale-leaseback transaction at January 1, 2020?
- Reagan Company uses leases as a method of selling its products. In early 2009, Reagan completed construction of a passenger ferry. On January 1, 2030, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Based on the foregoing and the following terms, What is the total financial revenue that will be reported by Reagan over the lease term? a.17,445,000 b. 19,245,000 c. 19,445,000 d. 22,000,000On January 1, 2021, Blossom, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Holt Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement.(a) The agreement requires equal rental payments at the beginning each year.(b) The fair value of the building on January 1, 2018 is $6500000; however, the book value to Holt is $5450000.(c) The building has an estimated economic life of 10 years, with no residual value. Blossom depreciates similar buildings using the straight-line method.(d) At the termination of the lease, the title to the building will be transferred to the lessee.(e) Blossom’s incremental borrowing rate is 12% per year. Holt Warehouse Co. set the annual rental to insure a 11% rate of return. The implicit rate of the lessor is known by Blossom, Inc.(f) The yearly rental…ABC Company leases a machinery from XYZ Company under a twelve-month operating lease. As an inducement to enter the lease, XYZ Company grants ABC free rent for the first two months. The lease is effective September 1, 2020 and provides for monthly rental of P12,000 to begin on November 1, 2020. 1.Compute for the rent expense for 2021 2.Determine the total net income to be recognized by the Lessor for the year 2020 as a result of this lease.
- Asian Transit Marine Corporation (Lessee) leases a forklift from NDP Leasing Corp. (Lessor). The lease, signed on January 1, 2019, specifies that NDP grants right-of-use of the forklift to Asian Transit. The lease terms are as follows: Lease is non-cancelable, term of four years, equal rental payments of P11,182.24 at the beginning of each year (annuity-due). Forklift has a fair value of P40,000, economic life of four years, and no residual value. Cost of forklift on NDP’s books is P30,000. No renewal options. forklift reverts to NDP. Implicit rate of lessor is 8 percent and is known by Asian Transit. Required: Prepare Journal Entries for both the Lessor and the Lessee from lease commencement until last lease payment. Show solutions of arrived amounts in good form.An entity is a manufacturer of machinery. It uses lease agreements to sell its product, On January 1, 2019, the entity leased a machine to another entity under the following terms: The lease term is 5 years, The annual rental is P500,000 payable every January 1, 2019. The machine has a cost to the entity of P1,600,000. Implicit interest rate in the lease, known to the lessee, is 8%. The machine reverts back to the entity at the end of 5 years with unguaranteed residual value of P400,000. The present value factors of 1 and annuity due at 8% for 5 periods are 0.68 and 4.21 respectively. What amount should be recognized as interest income for 2019?An entity is a manufacturer of machinery, It uses lease agreements to sell its product, On January 1, 2019, the entity leased a machine to another entity under the following terms: The lease term is 5 years. The annual rental is P500,000 payable every January 1, 2019. The machine has a cost to the entity of P1,600,000. Implicit interest rate in the lease, known to the lessee, is 8%. The machine reverts back to the entity at the end of 5 years with unguaranteed residual value of P400,000. The present value factors of 1 and annuity due at 8% for 5 periods are 0.68 and 4.21 respectively, What amount gross income should be recognized by the entity for 2019?